JPMorgan Emerging Markets - October 2020 fund update

Kate Marshall | Tue 03 November 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 it has the potential to provide good long-term growth and hold up slightly better when markets fall, but there are no guarantees
  • This fund is on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits into a portfolio

JPM Emerging Markets provides broad exposure to emerging economies, including markets such as China, India, Taiwan and Brazil. Emerging markets offer lots of opportunity for investors, but they're higher risk and typically more volatile than developed markets. This makes the fund a more adventurous way to try to grow 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. Eidelman joined JPMorgan in 2002, became co-manager of this fund in 2013 and was subsequently appointed lead manager in 2016. While he has most of the responsibility over which companies make it in and out of the fund, he also makes full use of the input and challenge provided by Forey.

Forey is an emerging markets stalwart and has been involved with the fund's management since its launch in 1994. With years of experience behind him, he 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 over a long period of time. This could help them 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 control over how the fund is constructed. 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.

Some of the fund's biggest investments currently include Sea Limited, a Singaporean internet platform provider which consists of digital entertainment, e-commerce, and digital financial services. The company is a fairly new holding and was added to the fund earlier this year. Meituan-Dianping is another significant holding. It's a Chinese shopping platform for local consumer products and retail services including entertainment, dining, delivery, and travel. The managers added to this stock at a lower share price during the coronavirus-related volatility earlier in the year.

The fund is currently biased towards Asian economies such as China and India, and the managers have increased exposure in recent years as they expect Asian markets to offer plenty of growth opportunity over the coming years. That said, they also think there are some great businesses in other emerging markets, including Brazil and Mexico. In their view it's about trying to find the best opportunities in any Asian or emerging market, regardless of the broader economic backdrop.

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 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. ESG (Environmental, Social and Governance) issues also form a core part of the analysts' research process.

Cost

This fund is available at an annual ongoing fund charge of 0.65%, after a 0.50% discount available through the HL platform. Before the discount the charge is 1.15%. 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, and also since Eidelman has been involved in its management. This is no mean feat as most emerging markets funds struggle to grow more than the market 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 has been particularly strong over the past two years*, and this is partly down to the managers' focus on quality companies with sustainable or higher-growth earnings prospects. This type of company has been favoured by investors in particular this year, which has boosted share prices.

That said, the managers' style isn't the only thing that's helped recent performance. Our analysis shows the managers' ability to pick stocks that go on to perform well, not only because of the type of style or sector they fall into, has also helped. For example, the investment in Sea Limited has been a recent strong performer. It's benefited from the adaption of online consumption, accelerated by the Covid-19 outbreak. Other strong performers include China's Foshan Haitian, the largest soy sauce manufacturer in the world, and Taiwan's TSMC, the world's largest semiconductor company. Past performance is not a guide to the future.

We typically 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. Performance compared with the market has been notably strong over the past couple of years, but this won't always be the case. If growth investing falls out of favour, the fund may not hold up quite so well.

Over the longer term our analysis shows the managers have added value by being in the right sectors at the right time. For example, investments in the technology, financials and consumer services sectors have performed best over the long run. Remember that all investments fall as well as rise in value, so you could get back less than you invest.

Annual percentage growth
Sep 15 -
Sep 16
Sep 16 -
Sep 17
Sep 17 -
Sep 18
Sep 18 -
Sep 19
Sep 19 -
Sep 20
JPM Emerging Markets 43.4% 20.1% -0.5% 17.1% 15.2%
IA Global Emerging Markets 38.5% 17.8% -0.8% 7.3% 2.0%

Past performance isn't a guide to the future. Source: *Lipper IM to 30/09/2020.

Find out more about JPM Emerging Markets including charges

JPM Emerging Markets 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.

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