David Kimberley
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Updated 20 Dec 2022
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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.

  • For the financial year ending 30/09/2022, JPMorgan Asia Growth & Income (JAGI) reported a NAV total return of -16.2% and a share price return of -17.2%. The MSCI All Countries Asia ex Japan Index, JAGI’s benchmark, declined by -13.9% over the same period.
  • Performance during the year reflected an extremely tough period for Asian equities, which impacted JAGI particularly because of its overweight to China and limited exposure to India, one of few bright spots in the region. With the exception of India, every market that JAGI invests in was trading below its 10-year historical price-to-book average on 30/09/2022.
  • Volatility also meant there were opportunities for JAGI, with the managers taking a position in Taiwanese lens manufacturer Largan Precision and adding to their existing position in Chinese manufacturer Sany Heavy Industry during the second half of the year. The managers believe that although it has been a volatile year for Asian markets, positive long-term trends, heavily driven by a rising consumer class, are still in play.
  • Over the period, JAGI’s discount widened from 8.3% to 9.6%, with an average discount of 6.4%. The trust’s discount stood at 10.0% on 13/12/2022. JAGI maintains an active discount management policy to reduce share price volatility and the trust repurchased 1,040,725 shares over the period.
  • Dividends for the period totalled 16.5p. JAGI pays a quarterly dividend, equal to 1% of NAV on the final day of each quarter. This does mean dividends will rise or fall in line with performance but it also gives the managers greater flexibility when making investment decisions.
  • Chairman of the Board Bronwyn Curtis said: “Asia’s long-term growth prospects remain bright. JPMorgan Asia Growth and Income is a low-cost way for investors to gain diversified exposure to the region’s best businesses, while also providing shareholders with a competitive income of approximately 4%. And with share price valuations now at historical lows in many regional markets, we share the Investment Managers’ excitement about the many opportunities now available to purchase interesting, world-class companies in various sectors across Asia, at particularly attractive prices.”

Kepler View

JPMorgan Asia Growth & Income (JAGI) offers investors an option for core, long-term exposure to companies in Asia. The trust makes use of its closed-ended structure to pay dividends from capital, with an objective of paying a quarterly dividend equal to 1% of NAV on the final day of the quarter. This gives the managers flexibility when investing, meaning they can tilt the portfolio towards more growth-oriented companies if they believe this is where the best opportunities lie, without having to worry about whether those companies will generate enough income to meet dividend objectives.

Asian markets have been rocked this year, partly because of the war in Ukraine which drove up commodity prices – a serious problem for energy importers like India and China. Another major factor has been China’s ongoing ‘Zero Covid’ policy, which has created huge supply chain jams and prevented factories and ports from operating. Outside of China, a global economic slowdown may be starting to dent exports from countries across the region, including South Korea, Taiwan and India. For JAGI specifically, being underweight to India, which the managers argue is expensive relative to peers and historical levels, and having exposure to higher growth companies in China and Taiwan led to underperformance.

All of this casts a gloomy pall over markets and can make it hard to find room for short term optimism. Nonetheless, JAGI’s performance over the long term remains strong and, even taking into account performance this year, the trust still delivered substantial outperformance of its benchmark, in both NAV and share price terms, over the five- and ten-year periods to 30/09/2022. The managers also believe that Asia, which now accounts for approximately 40% of global GDP, will continue to be a substantial area of growth in the long term. The rising consumer class and a growing number of innovative companies which are likely to be the primary drivers of growth look unlikely to disappear, despite the problems the world is facing today.

Volatility has also provided opportunities for the managers  throughout the year. In the six months to the end of September, the managers took a position in Largan Precision, a company which makes specialised lenses that are used in cars and smartphones. They also added to an existing holding in Sany Heavy Industry, a company that makes machinery used in construction. The managers did not make use of their gearing facilities in the financial year, nor have they done so in the subsequent period. We think this is a prudent move given that further volatility cannot be ruled out and means the managers do have resources at their disposal if more opportunities do present themselves and market sentiment starts to improve.

Despite trading at a 1.2% premium in December 2021, JAGI’s discount has since widened to approximately 10% as at 14/12/2022, likely reflecting investors’ fears about further near-term volatility. That’s understandable but we think the long-term prospects of Asia remain positive and note that the managers have a strong track record of investing in the region. We think the trust is a solid option for Asia exposure and it’s possible the discount will tighten if we see a positive turn in investor sentiment in the region.

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