JPMorgan Emerging Markets 02 March 2022

JPMorgan Emerging Markets (JMG) exemplifies many of the characteristics investors look for in an actively managed portfolio. The managers, Austin Forey and John Citron, focus relentlessly on identifying the best companies in their region rather than trying to anticipate the turns in the business or political cycles. They are truly long-term in their approach, with turnover below 10% in the average year over the past decade. Stock-picking is built on a rigorous and consistent process which is continually tested against results and applied via a consistent and thought-out strategy based on an analysis of how excess returns have been generated in the past.

The results have been excellent in recent years, and over the past decade the trust has outperformed its index and peer group by a significant amount, as we discuss under the Performance section. Austin and John have benefitted from some tailwinds since 2018, with low interest rates boosting growth stocks, China going through a burst of development and integration, and ecommerce and technology given a boost by the pandemic, but good stock-picking has driven returns for the most part. While the managers acknowledge sometimes the economic environment might run against them – as it has over the last six months – they remain convinced that over the long run focusing on earnings growth and closing one’s ears to the noise is the way to add alpha.

With the weakness in emerging markets seen during 2021, JMG’s discount has crept out to c. 11%, wide compared to the premium it saw in early 2021 and the five-year average of 9.1%.

JMG is a premium product. The exceptional track record is built on strong foundations, with a disciplined, repeatable process that is clearly well-thought out and the assumptions of which have been examined quantitatively and honed over many years. However, amid the plaudits, we think it is important to recognise the trust has benefitted from some tailwinds in recent years. However, the world economy is now going through a volatile period as investors reassess positions in the light of rate rises and quantitative tightening in the US and the end of the pandemic. As a result, this has not been a good six months for JMG as value stocks and cyclicals have been more in vogue. It is important to recognise that such a period could continue for some time, depending on how markets digest higher rates, and body politics digest higher inflation. We think it is reassuring to know that Austin and John will not change their approach and won’t lower their gaze from the long-term horizon, and think the trust should suit investors who are equally willing to take a long-term view.

The discount is a potential kicker. We would argue thought that, for those who truly are investing for the long run, any narrowing or widening of the discount should be insignificant compared to the returns to the portfolio – if it can generate the double digit annualised returns it has done in the past and which the managers believe possible in the future.