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David Kimberley
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Updated 15 Dec 2023
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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.

  • JPMorgan Asia Growth & Income (JAGI) has released its results for the year ending 30/09/2023. The trust delivered strong absolute and relative returns, with NAV and share price total returns of 6.4% and 7.3% respectively. The trust’s benchmark, the MSCI Asia ex-Japan Index, delivered equivalent returns of 1.4% over the period.
  • Long-term performance remains strong. JAGI has outperformed every year bar one over the last decade. Annualised NAV total returns in that period were 8.5%, compared to 6.5% for the benchmark.
  • Outperformance last year was driven by the managers’ stock selection, with overweight positions in technology companies and consumer discretionary stocks being the primary drivers, along with underweight positions to Chinese e-commerce companies.
  • During the period the managers took advantage of lower valuations to add new holdings to the portfolio. That included Indian conglomerate Mahindra & Mahindra and South Korean duty-free operator Hotel Shilla. The JAGI managers also sold their position in online retailer Sea, which faces increasing competition from Chinese e-commerce platforms.
  • The trust continued its policy of paying four quarterly dividends, equal to 1% of NAV at quarter end. Dividends for the year totalled 15.7p, representing a small decline on the prior year, when dividends totalled 16.5p.
  • JAGI’s discount tightened during the year, from 9.6% to 9.2% at the period end. This has since widened to 10% as at 13/12/2023. The trust engages in buybacks to manage the discount. In the year, the trust repurchased 5.7m shares, equal to 5.9% of share capital at the start of the period.
  • JAGI Chairman Sir Richard Stagg said: “The Company has the chance to invest in innovative, often world-leading businesses. With valuations across most of the region at long-term lows relative to both historic levels and to the US and Europe, now seems a particularly auspicious moment to be investing in Asia. We are therefore confident of the Company’s capacity to continue delivering capital gains and an attractive income to shareholders over the long term.”

Kepler View

JPMorgan Asia Growth & Income (JAGI) aims to provide investors with core exposure to Asia by investing in a portfolio of quality companies. The trust makes full use of its closed-ended structure to pay a dividend equal to 1% of NAV at the end of each quarter, paying from both revenue and capital reserves. We believe this approach allows the managers to focus on the best opportunities to drive total returns, rather than having to factor in yield considerations.

The trust has delivered consistent outperformance over the past decade, with only one year in which the managers failed to outperform. Last year was no different and, after a tough 2022 for Asia investors, the managers managed to deliver strong performance despite negative sentiment around China.

We think the managers’ stock picking process also proved itself in 2023. Partly that was reflected in underweight positions to Chinese e-commerce. This is a sector which has become increasingly competitive and subject to more regulatory pressure, crimping returns for investors in the sector. At the same time, JAGI’s overweight position to technology companies supported outperformance. We would note that this was not confined to ‘mega’ caps like TSMC or Samsung, as Taiwanese hardware company Wiwynn and Korean semiconductor manufacturer SK Hynix also drove outperformance for the trust.

The trust’s current positioning gives an inkling of what the managers’ views are moving forward, with overweight positions in financials, technology, and consumer discretionary. The second of these needs little elaborating upon as the primary driver is what it has been over the past year, namely growing demand for hardware and other technologies related to advancements in artificial intelligence, as well as continued digitisation globally.

Financials is more concentrated in Indonesia and India. These are two markets which have strong financial institutions but also offer compelling growth opportunities, given that they are both underpenetrated. The consumer discretionary story is broader, with disparate opportunities across Asia, including Indian car manufacturers and Chinese franchise operators.

We think those positions reflect the huge opportunity that Asia represents today. The continent looks set to be the engine of global growth in the next quarter century. Research from the Brookings Institute, a US think tank, indicates that the proportion of the global consumer class in Asia will rise to 80% by the end of this decade, up from approximately 50% today and barely 20% at the start of the century.

Demography is not destiny but the JAGI managers have proven themselves capable of sorting the wheat from the chaff in the region. As we noted in our latest research on the trust, JAGI is now trading at a discount that is substantially wider than its five year average. With rate hikes potentially having peaked and Asian companies also trading at low valuations, relative to both other regions and their own historical average, it’s plausible we’ll see a tightening of that discount if performance continues to be strong into 2024.

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