JPMorgan Asia Growth & Income 25 March 2021
Disclaimer
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by JPMorgan Asia Growth & Income. 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 Asia Growth & Income (JAGI) offers a combination of a growth-oriented portfolio and a dividend of 1% of NAV per quarter, paid largely from capital. Paying from capital allows the managers to focus on finding the best total return prospects rather than looking for yield, and means the trust can invest more in high growth sectors and companies than one paying a natural yield.
As we discuss in the performance section, JAGI is the top-performing Asian income trust over five years (although its dividend policy only dates from 2017). Excess returns have generally come from stock selection rather than country or sector allocation, in line with the intentions of the strategy.
The portfolio is managed by Ayaz Ebrahim, Robert Lloyd and Richard Titherington, senior members of JPMorgan’s Emerging Markets and Asia Pacific (EMAP) equities team. They pick the best ideas from a team of over 30 analysts based on the ground in Asia, who set out to identify companies which they believe can grow their earnings faster than the market average over the long run.
JAGI, which was named JPMorgan Asian before February 2020, remains heavily exposed to secular growth in the consumer, technology and financial spheres. However, its relatively balanced sector and country exposure has meant that it has not been a victim of the violent rotations between growth and value that have characterised the past year. JAGI has kept up with the market despite extreme macroeconomic and market volatility.
The discount has steadily narrowed since the 2017 change of dividend policy, and in recent months the shares have traded at a small premium to NAV. At the time of writing the premium is 2.1%.
JAGI offers an attractive package of high growth potential from a stock selection strategy biased towards growth areas, combined with an income paid from capital. For UK income investors, the fact JAGI delivers an income while investing in information technology and other traditionally low-yielding areas could be of particular interest, as UK equity income portfolios typically have a strong value bias. Meanwhile the trust’s focus on total returns should make it interesting for those seeking to reinvest and grow their capital too.
We note the analyst team are very positive on the earnings outlook for their underlying companies, and believe the long-term macroeconomic outlook for Asia is positive. However, they assess valuations as above average, which we believe increases the short-term risks. We note the EMAP team expects lower returns from the Asian market level than have been seen in recent years, although they believe the growth potential in their portfolio is higher than the market. JAGI also trades on a premium, which could increase the downside risks if Asia falls out of favour. However, we note the discount remained quite narrow even through the darkest days of the pandemic, and JAGI’s unusual offering of income and growth potential could support the discount. We believe Asia remains a highly attractive place to invest for the long run, although higher US interest rates and a strong dollar could provide short-term headwinds, especially considering market valuations. JAGI’s large analyst team and clearly defined process make it a potential core Asian holding.
bull | bear |
A substantial dividend yield not dependent on portfolio income |
The market is expensive relative to history and the portfolio expensive relative to the market |
Exposure to high-growth companies not often offered by income funds |
Emerging markets could be vulnerable if a strong recovery in the US sees the dollar rise |
Strong and consistent track record of outperformance through stock selection |
China is over a third of the benchmark, so investors take some single-country risk |