JPMorgan Asia Growth & Income 18 October 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) aims to generate outperformance of Asian markets from a focus on long-term stock picking by a team of dedicated analysts located in the region. JAGI’s managers, Ayaz Ebrahim and Robert Lloyd, focus on identifying high-quality companies with long-term earnings growth prospects. The trust pays a dividend of 1% of NAV each quarter, using capital reserves where necessary so that Ayaz and Robert can focus on capital growth rather than generating an income.
The ability of the managers to focus on the best total return opportunities has helped the trust generate substantial outperformance of the MSCI AC Asia ex Japan benchmark over the long run, as we discuss under Performance. In the market sell-off since February, JAGI has slightly underperformed, with some of the biggest winners in recent years selling off the most in the pull-back. Having traded on a premium for most of the year, JAGI’s shares have slipped out to a discount of 8.2%.
Ayaz and Robert’s approach is focused on the long-term, and as a result, they have made minimal changes to their portfolio despite the volatility in their region this year. While the portfolio has greater exposure to growth companies and sectors than the typical equity-income fund (due to the managers not needing to earn a natural income), the greatest allocation is to what Morningstar deems core companies rather than growth or value (see Portfolio), and the balanced stylistic and sectoral exposures mean the trust has performed steadily through some quite violent rotations between growth and value.
We think JAGI could serve as a core Asian exposure for either income or growth investors. The extensive resources the managers can call on in the region – 36 locally based analysts – and the strong, standardized analysis process with a focus on risks and earnings growth are attractive attributes for an active equity strategy. The focus on the long-term and on picking stocks rather than timing the market are disciplines that we think should serve an investor well over the long term and increase the chance of generating outperformance.
For income investors, one of the key attractions is diversification across various verticals. As well as the obvious geographical angle, JAGI’s ability to pay a dividend from capital means it can invest in low-yielding companies with great growth potential, offering income investors a way to enjoy their income without having to sacrifice capital growth. This contributes to a higher allocation to the information technology sector than the average UK equity income investor will likely have – although the structure of the Asian market also helps, as there are numerous high yielders in the Asian tech space too.
In the short term, Asia is facing some challenges, most notably from regulation in China and the country’s issues in the real estate and banking sector. We note the managers’ valuation signal warned at the start of the year that expected returns were low by historical standards. However, for a long-term investor, the current 8.2% discount could prove to be a good entry point, even if there could be more volatility to come in the short term.
bull | bear |
A substantial dividend yield not dependent on portfolio income |
China is over a third of the benchmark, so investors take single-country risk |
Exposure to growth companies and sectors not often offered by income funds |
The willingness to hold expensive stocks could increase the sensitivity to a falling market |
Strong and consistent track record of outperformance through stock selection |
Active management can lead to periods of underperformance as well as outperformance |