JPMorgan: income from emerging markets

Kate Marshall | Mon 25 January 2016

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Emerging markets have traditionally been favoured for their long-term growth opportunities, bolstered by rapid capital investment and urbanisation. Yet the developing world is increasingly being viewed as a source of income, with many businesses placing greater focus on shareholder returns and opting to pay attractive dividends.

Omar Negyal, lead manager of the JPMorgan Emerging Markets Income Fund, aims to take advantage of the rising number of income opportunities across the developing world. The portfolio comprises what he believes to be the best combination of high-yielding companies and those offering the potential for long-term dividend growth in this higher-risk sector.

The manager seeks companies whose share prices do not currently reflect their inherent worth, in his view. Once their true value is recognised by the wider market, the share price should rise to its fair value, thus also providing the fund with a source of capital growth. In the meantime, he expects to benefit from the regular dividends paid by these businesses. To gain trust in a company's ability to maintain and grow its dividend, Omar Negyal looks at a company's return on equity (a measure of profitability); free cash flow (the cash generated after accounting for capital expenditures); and its dividend policy.

The income opportunity

Presently, the JPMorgan Emerging Markets Income Fund offers an attractive yield of 5.6% (variable and not guaranteed).

Emerging markets businesses have, on average, seen their earnings fall in recent years. As such, Omar Negyal doesn't expect to see significant growth in emerging markets dividends in 2016, although he believes the fund will maintain a yield of at least 5% over the course of this year. He expects to see an attractive level of dividend growth over the longer term,which also provides a source of returns for patient investors during more volatile periods for emerging markets.

Performance analysis

2015 was a difficult year for the fund, which fell by 20.1% compared with a loss of 12.4%* for the average fund in the sector, although please remember past performance is not a guide to future returns. A bias to a number of countries whose currencies have weakened, including Brazil, South Africa and Russia, has damaged performance. The fund has also suffered from poor stock selection, particularly in the Chinese, South African, and Brazilian markets.

While the fund initially got off to a good start compared with its peers following its launch in July 2012, the recent spell of poor performance means it has underperformed the IA Global Emerging Markets sector since launch.

Past performance is not a guide to future returns. Source Lipper IM* to 04/01/2016.

Please note the fund can use derivatives should the manager see fit which adds further risk.

Our view on this fund

We view Omar Negyal as a smart investor. He uses a disciplined investment approach focused on finding quality companies valued at attractive prices and offering the potential for dividend growth.

Omar Negyal has 16 years' experience analysing and managing emerging markets equities. His personal fund management track record is, however, limited. He joined JPMorgan's Emerging Markets team shortly after this fund launched in 2012 and he has since assumed the role of lead manager and stock picker. He continues to have the support of co-manager Richard Titherington, an experienced emerging markets investor with a greater focus on wider economic issues than individual stock selection, as well as a large team of emerging markets specialists at JPMorgan.

Presently, we are not considering the fund for inclusion on the Wealth 150 list of our favourite funds across the major sectors. We will continue to monitor performance and inform investors if our views change.

Please note the fund's charges can be taken from capital which can increase the yield but reduces the potential for capital growth.

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.