JPMorgan Global Emerging Markets Income 25 May 2022

JPMorgan Global Emerging Markets Income (JEMI) offers an income from a portfolio of high-quality businesses operating in the emerging markets. It has a number of complementary and differentiating characteristics to the typical UK or global equity income portfolio.

JEMI is built on the stock selection of a team of over 35 analysts based in the region who work to a disciplined focus aimed at identifying companies which should outperform over the longer run by generating higher earnings than their peers. For JEMI, Omar Negyal, Jeffrey Roskell and Isaac Thong select companies which meet these criteria and also generate a yield. In theory the aim is to generate a yield of at least 130% of the MSCI Emerging Markets Index, but they have more than achieved this. The underlying portfolio yields 4.7% versus 3.2% for the index, while the trust’s historic yield is 4% at the time of writing (see the Dividend section).

JEMI’s income mandate and focus on finding companies with strong balance sheets means it tends to have a more defensive profile than many of its peers. This has led to the trust performing well in the recent downturn, with the lack of low-yielding ecommerce stocks particularly beneficial, and it has handsomely outperformed the index in total return terms over the past five years, as we discuss in the Performance section. This has been driven by allocations to financials, technology and the consumer, which is where the managers tend to find the most companies which meet their income and quality demands.

Despite its strong recent performance, JEMI’s Discount has widened to c. 11% at the time of writing, much wider than the five-year average of 5.6%.

JEMI is arguably the premium product for income in emerging markets. Its one obvious peer, Jupiter Emerging and Frontier Income, is in the process of liquidation. Furthermore, the core of the process is the stock selection of the emerging markets and Asia pacific team at JPMorgan who have an excellent track record of adding value on a suite of successful products. The process is built for the long term, with a repeatable and disciplined approach and a focus on fundamentals over macro and sentiment, both of which are much harder to forecast. We think the combination of growth potential and income could be highly attractive to an investor looking to diversify the sources of yield from UK or Global products.

One diversifying element JEMI offers is greater exposure to high-yielding companies in growth industries, such as technology hardware and online gaming. This is hard to find in the UK, and could be very attractive for the long-term investor. JEMI’s abilities, as an investment trust, to use dividend reserves to smooth income and to run structural gearing to enhance total returns have both added value in recent years, adding to the attractions of the trust.

In our view JEMI’s wide discount could represent an attractive entry point for those with a long-term perspective, although the short-term outlook for the region does appear cloudy. The trust’s defensive positioning could help it relative to the market if inflation and the fallout from the Ukraine war worsen.