David Kimberley
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Updated 07 Jun 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.

  • JPMorgan Asia Growth & Income (JAGI) has released its financial results for the half-year ending 31/03/2022. NAV and share price total returns for the period were down 6.9%, exactly matching the performance of the benchmark, the MSCI AC Asia Pacific ex Japan Index. This reflected an extremely challenging period for markets globally, with the mix of inflation, lockdowns in China, and the war in Ukraine, all putting pressure on equities markets.
  • Bouts of volatility are common in Asia and long-term JAGI shareholders will have seen plenty of them over the past two decades. However, the trust’s managers have a good track record of buying companies with strong earnings growth and balance sheets at attractive valuations. This is a strategy that has proved successful, with annualised NAV total returns of 9.7% over the past decade, compared to the benchmark’s 7.8%.
  • Despite current headwinds, trust managers Ayaz Ebrahim and Robert Lloyd remain upbeat about the long-term prospects of companies in Asia. Several additions to existing holdings were made as valuations became more attractive in the wake of price drops. Tech company Infosys was also added to the portfolio.
  • JAGI continued its policy of paying out quarterly dividends equivalent to 1% of the trust’s NAV during the period. Two dividends of 4.5p and 4.2p, totalling 8.7p, were paid to shareholders on that basis.
  • The trust’s discount at the end of March was approximately 8.5%, meaning it was only 0.2% wider than at the start of the reporting period. JAGI’s board has an active discount control policy and bought back 102,796 shares, to be held in treasury, during the period. The trust’s discount has since widened to 9.6% as at 31/05/2022.
  • Chairman of the board Bronwyn Curtis said: “The Board continues to believe that Asia offers significant long-term investment opportunities and, given the recent market sell-off, there are many opportunities now available at more attractive prices. The region is benefitting from major structural and social changes and it is home to a growing number of innovative, dynamic and well-managed companies, including some world leaders in tech, healthcare and other sectors.”

Kepler View

JPMorgan Asia Growth & Income (JAGI) continues to offer investors an option for core, long-term exposure to companies in Asia. It makes full use of its structure as an investment trust by paying out dividends to shareholders from capital, giving the managers more room to identify the companies they believe are likely to deliver better earnings growth than the market over the long run. Although the portfolio is currently skewed more towards growth stocks, stylistic considerations are less important to the managers than buying companies with robust earnings growth and balance sheets at appropriate valuations. As a result, the portfolio contains a mix of growth and value stocks, which the management team believes are likely to deliver long-term capital growth for investors.

Asian markets have not been immune from the volatility facing the world so far in 2022 and the trust managers’ willingness to pay higher prices for companies with better earnings growth mean they have been more subject to inflationary fears and the prospect of rate hikes. However, earnings growth has – at least thus far – continued to be strong in much of the underlying portfolio. Moreover, this is a long-term strategy and the strength of the trust’s holdings may mean they are better able to ride out the macroeconomic problems we’re facing today and still deliver long-term growth.

This appears to be the managers’ view too. Topping up existing positions in Han’s Laser and Singapore Exchange as valuations fell in the first quarter of the year, along with adding Indian tech firm Infosys to the portfolio, shows that the managers still have confidence in their investments, despite the volatility markets are experiencing. We would also note that JAGI has used gearing sparingly since 2017 and did not use gearing at all during the reporting period, a prudent choice given how markets performed in that time. The managers decision to use gearing is based on valuation signals derived from their own macro models. Valuations have not warranted using gearing for much of the past five years. However, given the falling share prices we’re seeing across many of the markets JAGI invests in, this means the trust is well positioned to take advantage of any opportunities that may present themselves.

Since the end of the reporting period, JAGI’s discount has widened to close to 10%, likely reflecting fears about further falls in the near-term. This is understandable but not necessarily justified. JAGI is underweight in both China and India, the two countries Asia investors are arguably most concerned about – the former because of government policy, the latter due to higher valuations. Furthermore, we understand that the trust’s holdings have not yet produced any notably poor results, with earnings growth still strong for the most part. Taking that into account, we think that JAGI remains a strong option for Asia exposure, with such a wide discount unlikely to persist if investment appetites for the region return.

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