JPMorgan Asia Growth & Income 15 March 2022

JPMorgan Asia Growth & Income (JAGI) aims to offer exposure to the best long-term growth prospects in Asia. The managers, Ayaz Ebrahim and Robert Lloyd, select companies for the portfolio based on the stock-specific analysis done by a team of over 40 analysts, mostly specialised by sector. The basic strategy is to identify companies in a position to grow their earnings faster than the market over the long run and hold for the long term, ignoring short-term market noise and wavering valuations.

The long-term Performance has been excellent, although in Q4 2021 and Q1 2022 markets have sold off. Many of the biggest contributors to outperformance in the previous years have underperformed the market. On a bottom-up basis, the team expect better than average returns from Asian markets over the next five years after this sell-off, with double-digit annual returns. In keeping with their long-term strategy, the managers have been looking through volatility where they see it as short-term and not driven by changes in fundamentals.

One of JAGI’s key attractions is the Dividend. The trust pays 1% of NAV each quarter, with the board supplementing the natural income from the portfolio with capital reserves. This means Ayaz and Robert are free to invest the portfolio in the best growth opportunities. As a result, over the past five years, the trust is the top-performing Asia Pacific income trust on a total return basis.

Perhaps thanks to this mixture of growth potential and income, JAGI has tended to trade on a premium to its AIC Asia Pacific Equity Income peers (see Discount).

In our view, JAGI is a great option for core, long-term Asia exposure for investors with either a growth or income objective. The management team’s focus is resolutely on the long-term, which we think is likely to be particularly important in volatile regions such as Asia Pacific. The process does bring with it some biases though. As discussed under Portfolio, there is more exposure to the growth factor rather than value. This is not extreme, and the growth companies JAGI prefers are those with sustainable earnings streams and strong balance sheets rather than speculative stocks. However, it does bring with it a greater sensitivity to rising interest rates than the market and a tendency to be in companies with higher valuations which can hurt returns in falling markets (such as we have just experienced).

Ayaz and Robert believe that over the long, run these sorts of macroeconomic factors will be less important to returns than earnings growth (backed up by research into what has worked in the past). As a result, they have re-examined the case for their holdings and, in aggregate, found the long-term return potential to be enhanced by lower starting valuations. In our view, while macroeconomic headwinds might persist in the short-term, there is still huge long-term growth potential in Asia, which merits having a long-term allocation and looking through the noise.