JPMorgan Emerging Markets 24 January 2024
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by JPMorgan Emerging Markets. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
JPMorgan Emerging Markets (JMG) is managed by Austin Forey and John Citron. While both have a good amount of experience investing in emerging markets, Austin’s experience is almost unrivalled, the manager having clocked up over two and a half decades investing in the region. The managers employ a simple yet powerful investment strategy that aims to deliver a good total return to shareholders. They run a high-conviction, low-turnover approach, targeting businesses they believe are of the highest quality. Each company must earn its place in the portfolio, demonstrating a proven record, preferably over multiple market cycles, of sustainable and consistent above-average earnings growth. A key tenet of the strategy is time and the managers’ belief that investing is a marathon not a sprint. As we note in the Portfolio section, it’s not unusual for an investment to be held for over a decade, as the managers believe there is nothing more powerful than allowing the eighth wonder of the world, compounding, to do its thing.
Employing such a tried and tested strategy has led to impressive results over the long run. However, a number of factors, most notably the return of high inflation and interest rates, coupled with a lacklustre recovery in China, have worked against the trust more recently (see Performance). Despite China’s economic recovery continuing to disappoint and overall confidence in the region remaining low given property and political concerns, the managers haven’t panicked and sold out of China, given the shorter-term noise. Instead, they’ve taken advantage of this market volatility, topping up a few Chinese listed names that they feel remain resilient, at much lower valuations.
JMG has been awarded a Kepler Growth Rating for 2023.
We think the managers’ high-conviction, bottom-up approach is tried and tested, proving its worth over a number of different market cycles. Over time they’ve targeted high-quality franchises that have demonstrated sustainable and consistent earnings growth, something that in turn has led to positive alpha being generated. While the strategy they employ is very simple, the managers’ long-term investment horizons have allowed them to let their winners run and their long-term investment thesis play out. It has also, given the effect of compounding, sufficient time to materially increase the portfolio’s overall value, evidenced by JMG’s impressive long-term track record (see Performance). We think a buy-and-hold strategy like the one JMG employs can be very effective if stock selection is done well.
At present, JMG’s Discount is wider than its own five-year average. We think, with optimism in emerging markets picking up, the outlook could be brighter moving forward, and given the near double-digit discount on JMG’s shares, it could be a good time for investors to access a well-diversified portfolio of high-quality emerging-market companies. If market sentiment and the general macroeconomic environment does improve, the discount could narrow and contribute to shareholder returns. We think JMG has rewarded investors over the long run, so could suit patient investors who are willing to take a long-term view in emerging markets, just as Austin and John do.
- The managers’ patient and long-term approach to stock picking has led to strong outperformance
- Preference for ungeared quality companies could prove beneficial in tough economic environments
- Significant resources, including large research team, allows for full and detailed coverage of emerging markets
- Aversion to use gearing allowance could limit potential in rising markets (just as it limits losses in falling markets)
- Concentrated exposure means single stocks can impact returns negatively as well as positively
- Discount could persist or widen if investors’ risk appetite remains weak