JPMorgan Asia Growth & Income 07 October 2020

JPMorgan Asia Growth & Income (JAGI) offers a combination of a growth-oriented total-return approach and a substantial dividend of 1% of NAV per quarter, paid largely from capital. JAGI was renamed in February of this year, having been known previously as JPMorgan Asian.

In NAV total-return terms JAGI is the top-performing Asian income trust over five years, (see Performance section). Its success is built on the bottom-up research of a team of almost 40 analysts based across Asia; an investment process designed to ensure stock selection rather than country allocation is the most material influence on relative returns.

The process is unchanged since the 2017 board decision to pay 1% of NAV in a dividend each quarter. This continuity means that the quality growth approach of the portfolio has not changed, and it remains heavily exposed to secular growth in the consumer, technology and financial spheres. This means JAGI offers a substantial dividend from a portfolio with very untypical exposures for an income fund. It therefore offers diversification to income investors but also greater total-return potential, if current trends for the outperformance of growth versus value and tech versus everything continue.

Following the emergence of the pandemic it has been essentially business as usual for the managers, who haven’t made radical changes to their positioning. The quality of the portfolio has increased slightly as they take advantage of cheaper valuations on certain companies.

Since implementing the enhanced dividend policy in 2017, the discount has generally been in single digits having previously been much wider – it is now c. 0.4%.

This has been a difficult period for income investors, given the impact of the pandemic on the earnings companies use to pay their dividends and government restrictions on payouts following their support schemes for companies. JAGI’s ability to pay dividends out of capital means that it is not affected by these issues, or at least only indirectly through any fall in the share price of its holdings.

So far there has been only a modest impact to the March dividend, as is discussed in the Dividend section, with the June payout seeing a marked recovery. As the dividend is based on the quarter end NAV, market movements are critical. Areas of high growth such as technology and ecommerce have outperformed, and JAGI has substantial holdings there despite the fact that they offer low dividend yields. This choice of holdings reflects, what we think, is the key long-term attraction of the trust: its ability to offer access to high-growth sectors and companies whilst shareholders receive a significant dividend yield.

These considerations mean that we think the tight discount is justified. We would expect pressure on developed world dividends to continue, due to the uncertain outlook for the pandemic. In addition we would expect growth stocks to continue to perform strongly, due to low rates continuing for some time to come.