Updated 08 Jan 2019
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Material produced by Kepler Trust Intelligence should be considered as factual information only and not an indication as to the desirability or appropriateness of investing in the security or securities discussed.

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2018 was a tough year for emerging markets, which saw extensive falls led by technology stocks in China and small caps in India which, having benefited greatly under prime minister Modi in the previous year, were beaten back as populist politics took root in the subcontinent.

The silver lining for investors, however, is that this has put emerging markets assets in a competitive situation; they are undervalued both historically (with equity price/earnings and price/book ratios below their 2000-18 averages and currencies undervalued) and relative their mature market counteparts (especially offering higher real yields).

JPMorgan Emerging Markets, which our research team covered last month, is one of the largest investment trusts operating in this sphere and has an interesting profile of returns, discount and manager experience. The trust is ranked first in the AIC Global Emerging Markets sector over five years, second over three years, and third over one, yet it currently trades on a discount to net asset value of 9%.

The trust’s strong NAV performance has been achieved under the stewardship of one of the most experienced, and longest tenured, fund managers in the sector. Austin Forey has managed the portfolio since 1994, seeing it through multiple market cycles and crises including the Mexican crisis of 1994, the Asia crisis of 1997 and the 2008 financial crisis.

Austin pursues a stockpicking approach and his long tenure is reflected in his sceptical, conservative  approach to some of the wilder claims which are made about emerging markets – both optimistic and pessimistic. Investors often forget to respect the cycle in emerging markets, he warns. Austin has also learned to be wary of leverage in potential investments, as crises in the region almost always stem from excess leverage and a lack of cash. These insights may explain the remarkable steadiness of returns on the trust in recent years: in NAV terms it has outperformed in seven of the past ten years. Two of the three years of underperformance came in the sharpest rallies, which rewarded more highly leveraged and less cautious managers

The trust has also 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, and generated steady dividend growth – aiming to grow its dividend each year in line with earnings; the yield is 1.5%.

We covered the trust in a detailed research note in December 2018, which you can read by clicking on the button below.

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