JPMorgan Emerging Markets 13 September 2024

When managing JPMorgan Emerging Markets (JMG), Austin Forey and John Citron leverage their experience and vast resources at JPMorgan to identify high-quality businesses across emerging markets. They emphasise that focussing on quality and viewing investing as a marathon, not a sprint, allows them to harness the power of compounding returns—a strategy they consider most effective for delivering strong total returns to shareholders over time.

Whilst a long-term focus is crucial, the managers will also make changes to the Portfolio when opportunities arise, something they’ve done more of over the past 12 months, versus previous years. Notably, due to ongoing political and economic pressures in China, seven out of the nine stocks sold over the year were smaller Chinese positions, particularly those at the tail end of the portfolio. In India, the managers adhered to their strict quality and valuation discipline, and despite impressive returns, avoided lower-quality businesses and higher-quality equities trading at stretched multiples. Instead, they took the opportunity to increase their holding in Kotak Mahindra Bank and initiate a new position in Praj Industries on valuation grounds.

Whilst the focus on high-quality companies across emerging markets has been a long-term strength for JMG, it has also been a challenge over the past two and a half years (see Performance). During this period, cyclically sensitive and lower-quality stocks have outperformed, resulting in an unusually consistent period of underperformance for JMG. As such, its Discount remains wider than its five-year average. However, considering the trust’s long-term track record and history of trading at a narrower discount compared to the sector average, it could present investors with a potentially attractive entry point.

JMG has been awarded a Kepler Growth Rating for 2024.

One of JMG’s most appealing aspects is the long experience of its managers, particularly Austin Forey, who has displayed a steady hand and disciplined approach through different market cycles since 1994. In 2021, John Citron joined the management team, after working alongside Austin for over a decade and developing a similar management style. Over their respective tenures, they have resisted the temptation to chase short-term performance, even during periods where JMG has underperformed. Instead, they aim to block out market noise and build conviction in businesses with long-term potential, emphasising their quality, strength of management, and valuations. This approach has been a crucial factor behind JMG outperforming the index over the last decade (see Performance).

However, as with any investment strategy, there are inevitable periods of underperformance. For JMG, this has occurred over the past two and a half years. The shift in interest rates in 2022 created an environment where cyclically sensitive or lower-quality stocks outperformed—a segment that the managers typically avoid due to their focus on quality. This was compounded by the sharp correction in many of the trust’s quality growth stocks, which had previously thrived leading up to 2022 but have struggled amid rising rates and inflation. This combination caused the trust to lag the market.

Despite these challenges, the managers remain committed to the process and are not swayed by short-term trends. Instead, they are adjusting the portfolio, adding high-quality stocks at attractive valuations, whilst removing those unable to withstand current economic pressures. Overall, we think JMG’s quality-focussed portfolio is well-placed to benefit from the abundant structural growth trends in emerging markets and as optimism picks up for the global economy, we could see JMG’s double-digit Discount potentially narrow, which could add an extra kicker to returns.