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JPMorgan Emerging Markets - earnings growth drives returns

Kate Marshall | Tue 13 February 2018

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.
  • This fund provides broad exposure to the fast-growing emerging markets
  • An improvement in company earnings growth helped drive share price performance last year
  • The managers remain focused on companies they believe will grow sustainably over the long term

Our View

Emerging economies are home to a diverse range of countries and companies. This variety means seeking out the best investment opportunities is no easy task, so we believe investors seeking exposure are best placed with highly-experienced managers. In our view, Leon Eidelman and Austin Forey fit the bill.

The managers seek quality companies they expect will deliver sustainable earnings growth over the long term. Their investment style means, over longer periods, the fund has tended to provide some resilience in a falling market and largely keep pace, rather than outperform, a rising market.

They typically focus on larger businesses, but the fund’s exposure to medium-sized companies has increased slightly over the past year. These companies often have greater growth prospects than more-established firms, and the managers believe this offers more potential for the fund to outperform in a rising market. We don’t expect to see a significant change to the way the fund behaves, but we like the fact the managers are willing to be flexible and are focused on enhancing returns for investors.

This fund remains one of our favoured choices for broad exposure to the emerging markets. It features on the Wealth 150+ list of our favourite funds

Performance and positioning

Emerging stock markets delivered strong returns over the past year. JPMorgan Emerging Markets delivered an even better return and grew 29.0%*. This is not a guide to future performance, however, and investing in emerging markets is higher risk so a long-term outlook is essential.

Annual percentage growth
Jan 2013 -
Jan 2014
Jan 2014 -
Jan 2015
Jan 2015 -
Jan 2016
Jan 2016 -
Jan 2017
Jan 2017 -
Jan 2018
JPMorgan Emerging Markets -15.7% 21.0% -18.7% 45.7% 29.0%
FTSE Emerging -15.0% 20.0% -16.7% 43.3% 22.0%

Past performance is not a guide to the future. Source: *Lipper IM to 31/01/2018

The fund benefited from exposure to the technology sector, which delivered exceptional returns throughout the year. The shares of some of China’s biggest internet companies grew particularly strongly – investments in Tencent and Alibaba, for example, were key contributors to performance.

The managers expect to see further growth from these companies, some of which provide a platform for goods and services to be bought and sold. China is expected to be one of the fastest-growing markets for ecommerce over the coming years, so they could benefit from rising consumer spending.

The managers’ stock-picking in the financials sector also proved a success, particularly in India. This includes HDFC, one of India’s leading mortgage lenders. They expect the company to benefit from rising urbanisation and an increase in demand for housing and mortgages, which are becoming more affordable due to rising incomes.

Outlook

Developing economies are currently growing at a faster rate than their Western counterparts. As these countries mature, the environment in which businesses can grow becomes more robust, helped by improved regulation, education, and technology.

Over the long term, the managers believe earnings growth will be the main factor that drives share prices. Corporate earnings improved significantly over the past year and they remain focused on companies they expect to deliver further growth.

The valuations of emerging markets companies also look attractive compared with developed markets, such as the US and Europe, according to the managers. This means shares can be purchased at a more attractive price compared with their future growth potential.

Find out more about this fund including how to invest

Please read the Key Features/ Key Investor Information in addition to the information above.

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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