JPMorgan Emerging Markets: April 2020 fund update

Kate Marshall | Mon 27 April 2020

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  • This fund's managers have years of experience of investing in emerging markets between them
  • They also benefit from the research carried out by a large team of portfolio managers and analysts based across the globe
  • A focus on quality companies with sustainable growth prospects means we expect the fund to hold up slightly better when markets fall

How it fits in a portfolio

This fund provides broad exposure to the higher-risk emerging markets, which makes it a more adventurous way to try to grow your wealth over the long term. It could help diversify a global portfolio focused on long-term growth, and sit well next to funds that mainly invest in developed markets.

Manager

Leon Eidelman is lead manager of this fund, alongside co-manager Austin Forey. Forey is an emerging markets stalwart and has been involved with the fund's management since its launch in 1994. Eidelman joined JPMorgan in 2002, became co-manager of this fund in 2013 and was subsequently appointed lead manager in 2016. With years of experience behind him, Forey continues to provide valuable support to this fund. Both managers also run or contribute to other emerging markets portfolios at JPMorgan, using the same core process throughout.

While the managers have plenty of experience investing in emerging markets between them, they also draw on a well-resourced team for ideas and analysis. There are currently almost 100 portfolio managers and analysts based in eight countries across the globe. We think this is invaluable given the vast range of countries and companies the team needs to consider, and it also means they've been able to expand their research coverage over time.

Process

The managers aim to perform better than the broader emerging markets by investing in high-quality companies that can sustain earnings growth over the long term. They believe most investors underestimate the potential for share price growth in companies that can grow their earnings at a sustainable pace. This allows them to buy company shares at a reasonable price, and hold on to them as they grow their profits, and hopefully their share prices, over the long run.

Eidelman and Forey have the final say over what companies make it in and out of the fund. But the wider team of analysts also carry out extensive research and provide new ideas. They typically travel across the region to visit companies and gain insight into what's happening in different economies.

The team looks for quality companies with the aim of calculating how much a company will grow its earnings over the next five years. They consider the financial strength of a business, the quality of the management team and the decisions it takes, and the level of corporate governance. Other factors, such as the dividends a company pays and how changes in a country's currency might impact a business, are also considered.

The managers mainly invest in large, established firms, but also invest in some medium-sized companies with greater growth prospects. They currently mainly focus on three core areas: the technology, financials and consumer sectors. Current investments include Chinese tech giants Alibaba and Tencent, insurance firms AIA Group and Ping An Insurance, and online marketplace MercadoLibre. In particular, the managers think companies that provide online entertainment and gaming are less likely to be impacted by the recent events surrounding the coronavirus, and could even benefit as people look for alternative sources of entertainment.

Culture

JPMorgan is one of the world's biggest asset managers. It has investment professionals based all over the world, and the team behind this fund are able to tap into this experience and local knowledge. The group is home to a strong emerging markets offering and the team is stable, with low turnover among senior members.

Forey has remained loyal to the group over the years and we think he is dedicated to the emerging markets franchise. Eidelman is a younger manager, but he has worked at JPMorgan for almost two decades and his responsibilities have increased over the years. We view it positively that the managers are incentivised to focus on long-term performance.

The managers also take into account sustainability issues. They favour companies with strong governance, which could enhance a firm's reputation, and actively engage with businesses to help reinforce positive behaviour.

Cost

This fund is available at an annual ongoing fund charge of 0.65%, after a 0.50% discount available through the HL platform. This makes it one of the cheapest funds available in the Global Emerging Markets sector through HL. The fund discount is achieved through a loyalty bonus, which could be subject to tax if held outside of an ISA or SIPP. The HL platform fee of up to 0.45% per year also applies.

Performance

The fund has outperformed the broader emerging stock market since launch. This is no mean feat as most emerging markets funds struggle to grow more than this benchmark over such a prolonged period. There have been periods when the fund has underperformed though, and this will happen at times in the future too.

Performance was strong last year, boosted by investments in China, India and Brazil. In China, investments in Ping An Insurance, AIA Group, drinks company Kweichow Moutai and New Oriental Education, a provider of educational services, all contributed to returns. We don't usually expect performance to be quite so strong in rising markets, but good stock-picking proved valuable. Remember past performance isn't a guide to future returns.

A focus on quality companies with the potential for sustainable earnings growth means we expect the fund to perform similarly to the broader emerging stock market when it's rising, and hold up slightly better when it's falling. This has happened so far this year helped by the fund's bias towards China, which has held up better than many other markets. Avoiding the energy sector and Russian companies has also helped.

Our analysis shows the managers have added most value by being in the right sectors at the right time. For example, investments in the financials and technology sectors have performed best over the long run.

Annual percentage growth
Mar 15 -
Mar 16
Mar 16 -
Mar 17
Mar 17 -
Mar 18
Mar 18 -
Mar 19
Mar 19 -
Mar 20
JPM Emerging Markets -9.5% 39.1% 11.4% 4.7% -6.6%
FTSE Emerging -8.9% 35.6% 8.8% 1.9% -13.0%

Past performance is not a guide to the future. Source: Lipper IM to 31/03/2020.

Find out more about this fund including charges

Key investor information

Important information

Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice.

No news or research item is a personal recommendation to deal.

Hargreaves Lansdown Asset Management is authorised and regulated by the Financial Conduct Authority.

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