JPMorgan Global Emerging Markets Income 27 November 2024

JPMorgan Global Emerging Markets Income (JEMI) is managed by the experienced duo, Omar Negyal and Isaac Thong, who employ a two-pronged strategy when investing in emerging markets. They scour their investable universe for the highest quality, dividend-paying businesses whilst also keeping a close eye on valuations, allowing them to blend the most appealing elements of both quality and value strategies. This has proven a powerful source of returns over the long term and supported the portfolio through different stages of the economic cycle (see Performance).

JEMI offers investors an attractive income with the added advantage of higher growth potential compared to the typical UK equity income fund. By focussing on both value and quality characteristics, the portfolio taps into the significant upside potential on offer in emerging markets, but also the sector's improving Dividend culture, with several new additions to the portfolio highlighting companies’ increasing commitment to shareholder returns.

One such addition to the portfolio is Chinese tech giant Tencent, which has increased both its dividend and buyback efforts, recognising the importance to its minority shareholders. The managers have also taken advantage of attractive valuations in certain parts of the market, topping up positions on share price weakness such as Realtek Semiconductor, which they believe shares similar growth drivers with TSMC but trades at a much lower multiple.

At the time of writing, JEMI is trading at a 14.1% discount, wider than both its five-year average of 9.7% and the Morningstar Investment Trust Global Emerging Markets average of 10.1%.

JEMI has been awarded a Kepler Growth Rating for 2024.

JEMI’s managers see emerging markets as ripe with opportunities, propelled by long-term structural drivers and historically low valuations in key markets. They are particularly focussed on several areas harbouring interesting opportunities at low multiples, including China. Low valuations have prompted the managers to gradually increase exposure since 2020, with the portfolio now modestly overweight. Acknowledging the risks associated with China – especially the ongoing issues in its property sector – the managers are closely monitoring this exposure but note some encouraging signs, including fresh government stimulus and a stronger emphasis on shareholder returns. For patient, long-term investors, we think JEMI’s exposure here could prove beneficial. Whilst antipathy remains and recent geopolitical tensions have dampened returns, if China can sustain its rebound and stabilise its economic issues, JEMI stands to benefit from potentially attractive returns.

Another area of optimism is South Korea. Inspired by Japan’s successful reforms, South Korean policymakers are increasingly focussed on enhancing the standards of companies and improving shareholder returns, with encouraging, albeit early-stage, signs of change demonstrated by increasing dividends and share buybacks. In our view, this shift aligns well with JEMI’s income-focussed approach. Coupled with the broader strengthening of dividend culture across emerging markets, JEMI’s portfolio appears well-positioned to deliver a strong, growing income stream whilst benefitting from the sector’s growth potential.

In the near term, we do believe that uncertainties – such as fluctuating inflation, varying interest rates, potential US recession risks, and ongoing scepticism about China – may continue to weigh on JEMI’s discount. However, the long-term outlook is more promising, and as these pressures ease, JEMI could see performance improve and its discount narrow back into single digits.