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Fund Profile

JPMorgan Global Emerging Markets Income 20 July 2023

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by JPMorgan Global Emerging Markets 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.

Overview
JEMI offers core emerging markets exposure with an attractive dividend yield…
Overview

JPMorgan Global Emerging Markets Income (LON:JEMI) offers an attractive income from a portfolio with higher growth prospects than the typical UK equity income fund. This is partly due to the nature of the market, which houses a number of technology companies with solid earnings growth potential and high yields. It is also due to the stock selection framework applied by JPMorgan’s extensive analyst team, which aims to identify high-quality companies with good five-year growth prospects.

Shareholders have been rewarded with good long-term total returns and significant outperformance of the benchmark in recent years (see Performance) as well as growth in the Dividend, despite the severe disruption of the pandemic, not to mention the fall-out from the invasion from Ukraine and heightened geopolitical tensions. JEMI is the only emerging markets trust with an income mandate and yields 4% at the time of writing. The dividend was more than covered in the 2022 financial year after two years of COVID disruption, and the trust has healthy revenue reserves.

The portfolio is managed by Omar Negyal, Isaac Thong, and Jeffrey Roskell of the JPMorgan Emerging Markets and Asia Pacific (EMAP) Equities team. Jeffrey has decided to retire next year, but we do not expect any change to the strategy or its application. One of the strengths of the strategy is the depth of the analytical resources brought to bear at the stock level as well as the clear discipline about what is sought in stock picks.

The shares trade on a 10.6% discount at the time of writing, wider than their five-year average.

Analyst's View

We think JEMI is an attractive way to take long-term emerging markets exposure for growth investors as well as income investors. The yield discipline brings some stylistic and sectoral diversity, with the managers moderating a focus on quality growth with the need to find companies paying a healthy yield. That said, the portfolio typically displays notably higher growth potential than the index and good quality characteristics too – e.g. strong balance sheets and above-average and sustained return on equity. For this reason, we think it could appeal as a core emerging market holding for those who want to invest for long-term growth. While the managers use gearing to boost the yield, the lower beta of the portfolio means that the realised volatility and beta of the NAV have been relatively low in recent years.

For income investors, we think the growth potential which accompanies the attractive yield stands out versus the typical UK equity income portfolio. While dividends tend to be more variable in emerging markets, the managers have done a good job of growing earnings sustainably, and for long-term investors there is the potential for changing dividend cultures to lead to steadily rising payout ratios in multiple markets which have historically prioritised dividends less.

In the near term, there is plenty of economic uncertainty in developed markets as well as emerging markets. But JEMI’s wide discount offers an interesting entry point with the potential to enhance returns over the course of a cycle. The managers argue the current market environment is likely to prove helpful for their stock-specific approach to adding alpha, now that the macro volatility we saw over 2022 seems to be reducing.

Bull

  • Offers good diversification to income investors
  • Emerging market valuations look more attractive after the recent sell-off
  • Offers more growth potential than the typical UK equity income portfolio

Bear

  • May underperform in growth rallies
  • Structural gearing will increase downside exposure as well as upside
  • Dividend culture is not as developed in some of its markets, so managers may have to work harder to maintain the dividend
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