JPMorgan Emerging Markets Investment Trust: October 2023 Update

• Austin Forey is an emerging markets veteran with almost four decades experience
• This is one of the longest running emerging market investment trusts
• The long-term performance track record has been strong

How it fits in a portfolio

JPMorgan Emerging Markets Investment Trust aims to grow capital over the long term. It invests in growing businesses across a diverse range of emerging economies such as India, China, Taiwan, and Hong Kong. It’s important to note that whilst emerging markets offer lots of opportunity for investors, they're higher risk and typically more volatile than developed markets.

Given its focus on growth, the trust could complement more value orientated Asia and emerging market investments. It could also be blended with other trusts or funds that mainly invest in developed markets as part of a globally diversified portfolio.

Manager

Austin Forey is a seasoned emerging markets investor and has managed this trust since 1994. His career at JPMorgan began in 1988 during which he’s built up an extensive knowledge of global markets. His analyst career focussed on the engineering, financials, and property sectors. He served as deputy head of UK research before joining the emerging markets team.

Forey is supported by co-manager, John Citron who was appointed in March 2021. He joined JPMorgan in 2009 and has worked across both the European and Emerging Markets Asia Pacific Equities teams. The duo have worked closely for several years and also manage other funds focused on emerging markets, adopting the same core process throughout.

The managers benefit from a well-resourced team of around 140 individuals across nine countries. From Seoul to Mumbai, they have eyes in most corners of the market. We think this is invaluable given the vast range of countries, cultures and companies within their investable universe.

Process

Forey and Citron seek to invest in high-quality companies with sustainable growth prospects and hold them for the long term. They pay close attention to the financial strength of a business, the quality of the management team 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.

To quantify these factors, the managers leverage off the extensive analyst resource available. Each analyst is required to complete a checklist of around 100 questions to build a deep understanding of the business and any associated risks. They also travel across the region to visit a vast number of companies annually to gain insight into what's happening on the ground.

Once they’ve established whether they want to own a company, they need to ensure they aren’t overpaying for it. They forecast the expected return over five years and try to identify what’s driving that growth. The team need the catalyst for growth to be delivered principally through earnings growth and dividends, rather than solely a change in its valuation.

The managers use this analysis to construct a portfolio of between 60-100 companies which means it can look quite different to the benchmark. They mainly invest in large, established firms, but also invest in some medium and higher-risk smaller companies. For example, they invest much more in companies based in India and Hong Kong than the benchmark. In contrast, China and South Korea are some of their biggest underweights. Sector wise, information technology, financials and consumer staples are where they find most opportunities.

Given their long-term focus, the managers don’t tend to make too many changes. Over their past financial year (to end of June 2023) they topped up several of their Chinese holdings whose share prices had declined and offered a good entry point. They also bought two new Indian companies, Kotak Mahindra Bank and IT services company, Cyient.

The trust also has the ability to borrow money to invest with the intention of increasing returns (known as gearing) which increases risk. Currently the managers don’t use this facility.

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 can 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 and spent his entire investment career at JPMorgan, and we think he is dedicated to the emerging markets group. We view it positively that the managers are incentivised to focus on long-term performance.

ESG integration

JPMorgan committed to integrate Environmental, Social and Governance (ESG) factors into their investment processes for active funds in 2016 and ESG is now a foundation for investment decisions across the firm. JPMorgan funds take a variety of different approaches, from quantitively scoring companies on a variety of ESG measures to help with portfolio construction, to more qualitative analysis achieved through fundamental research and company meetings. All fund managers have access to the central Sustainable Investing team, as well as thematic research and analytics, which focus on climate change and carbon transition.

Investment teams are required to demonstrate their progress on integrating ESG to a working group of senior managers from across the business and the Sustainable Investing team. Their progress is measured against a 10-point scoring system and must satisfy several conditions before it can achieve ‘ESG accredited’ status.

If the strategy does not meet this threshold, the investment team in question will need to incorporate the feedback from the working group and can reapply to restart the review process. Once approved, teams must seek recertification every three years, and are subject to ongoing monitoring. We like this objective approach to internal ESG accreditation.

The firm has detailed voting policies which are specific to each region they invest in and account for local customs. Investment teams and investment stewardship specialists in the relevant region are responsible for implementing those policies, based on their deep knowledge and experience of the country, sector and company. A detailed fund-by-fund and company-by-company voting record is available on the JPMorgan website, although voting rationale is not provided. Fund managers also regularly engage with the companies they invest in, and there are a number of case studies on their website and in their annual Investment Stewardship report.

Cost

The trust's ongoing annual charge in June 2023 was 0.85%. Investors should refer to the latest annual reports and accounts and Key Information Document for details of the risks and charging structure.

If held in a SIPP or ISA, the HL platform fee of 0.45% (capped at £200 for a SIPP and £45 for an ISA) per annum also applies. Our platform fee doesn’t apply if held in a Fund and Share Account.

As investment trusts trade like shares, both a buy and sell instruction will be subject to the HL share dealing charges.

Performance

The JPMorgan Emerging Markets trust has delivered strong returns versus the benchmark and the peer group under Austin Forey’s management. Over the past ten years, the trust’s net asset value (NAV) has risen by 105.22%* vs 57.58% for the AIC Global Emerging Markets sector average. The share price also rose by 109.14%. Past performance is not a guide to future returns.

Over the trust’s financial year to the end of June its share price rose 0.82% versus 6.64% for the AIC sector average. The trust’s NAV also increased marginally by 0.02% with the currency effect detracting from performance. Whilst it lagged the peer group, it did outperform its official benchmark which posted a negative absolute return over this period.

So far this year, some of the best performers have included TSMC – the world’s largest semiconductor firm – MercadoLibre, the Argentinian e-commerce business and Indian manufacturer, Supreme Industries. In contrast, Hong Kong Insurance company AIA, US software firm EPAM Systems and Budweiser Brewing were among the biggest detractors.

Remember all investments fall as well as rise in value, so investors could get back less than they invest. Investors in closed-ended funds should be aware the trust can trade at a discount or premium to the net asset value (NAV). The trust currently trades at a discount of 10.62%.

Past performance is not a guide to the future. Source: *Lipper IM to 30/09/2023.

Find out more about JPMorgan Emerging Markets Investment Trust, including charges

JPMorgan Emerging Markets Investment Trust Key Investor Information

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