JPMorgan Emerging Markets (JMG) aims to maximise total returns by investing in emerging market equities with a long-term, low turnover approach. The manager, Austin Forey, focuses on identifying companies with the potential to continue compounding their earnings faster than the market over the course of many years, and then aims to hold onto them through their cyclical ups and downs in valuation and share price performance.
The result has been excellent performance in recent years. The trust has been a consistent outperformer in rising and falling markets, beating its benchmark index in NAV total return terms in seven of the past ten years. Over the past five years the trust has comfortably outperformed the index and the peer group, with NAV total returns of 60.4% compared to 40.6% for the benchmark and 41.2% for the Morningstar IT Global Emerging Markets sector.
Austin has managed this trust since 1994 and so has vast experience in the region and has refined his approach over that time. His portfolio is concentrated in consumer names, financials and technology, selected on a bottom-up basis rather than for sector or country reasons. Recent purchases have increased the allocation to the growing Chinese domestic economy, which Austin believes have little exposure to the trade war between the US and China and should continue to grow despite that conflict.
Although focusing on capital growth, the trust has also generated steady dividend growth and aims to grow its dividend each year in line with earnings; the yield is 1.2%, and the trust has implemented an interim dividend this year for the first time.
The trust is trading on a discount of 7.2%. This represents a considerable narrowing since the start of the year and on the five-year average of 11.7%. Discounts on the sector have come in too, from a five-year average of 9.1% to 8.1%, according to Morningstar data. Nonetheless, the board has continued to support the share price with buybacks when the discount has been at or over 8%.
The performance of this trust in recent years has been highly impressive, with NAV beating the benchmark consistently in rising and falling markets. While past performance should not be treated as a prediction, we do think this illustrates the benefits of the low turnover, long-term approach taken by Austin and team. This approach has been linked to greater chances of outperformance by academic research. Austin’s multiple decades of experience and consistent investment style are also a great advantage as this is a region where it can be easy to be sucked in to trends and fashions. The conservatism that comes from seeing multiple crises in the region makes this an attractive option for those seeking exposure to emerging markets.
|A highly experienced manager with a strong long-term track record
||The growth tilt can lead to underperformance in value driven markets
|Exceptional resources and an on-the-ground analyst team
||The reticence to use gearing could limit returns at times during the cycle
|An attractive discount with the board active in trying to close it