Emerging markets have traditionally been favoured for their long-term growth potential, with increasing urbanisation and growing middle classes. However, the developing world is increasingly being viewed as a source of income, in addition to capital growth. Compared with other regions of the world, the number of emerging markets companies offering a good dividend is vast.
Source: JPMorgan, correct at 31/03/2015
The JPMorgan Emerging Markets Income Fund aims to capitalise on the growing number of income opportunities across the developing world. While manager Richard Titherington tends to focus on the wider economic environment, asset allocation and overall portfolio positioning, co-manager Omar Negyal is mostly in charge of individual stock selection. In their view, dividends are a good indicator of a company's corporate governance, as companies that are willing to set out their dividend policies are more likely to be transparent. However, it is important to note investing in emerging markets is higher risk and all dividends are variable and not guaranteed.
The managers focus on three broad categories of income stocks:
- High dividend yield stocks, which tend to yield in excess of 6%. These stocks may either have low growth characteristics, or could be at risk of a dividend cut, meaning they only tend to make up a small proportion of the portfolio. Examples include Tupras, a Turkish oil refiner, which has recently been sold from the fund.
- Target dividend yield stocks, which are likely to yield between 3-6% and form the core of the portfolio. Ambev, a Brazilian beverage company, is currently held, paying a 4.15% yield (variable and not guaranteed) and has a good record of increasing its dividend over time.
- Low dividend yield stocks, which yield less than 3% and are expected to offer the potential for dividend growth. This includes Delta Electronics, a Taiwanese manufacturer of components and industrial automation.
The fund has struggled to outperform its benchmark so far this year, which the managers partly attribute to country allocation. In particular, a lower exposure to China than the benchmark has held back performance as the Chinese stock market has performed strongly this year. Stock selection in China has also been a drag, with gaming companies Wynn Macau and Sands China undergoing a poor period of performance. The fund primarily invests in larger companies; although it is not restricted by size and can invest in higher-risk smaller companies should the manager choose to.
Our view on this fund
Richard Titherington has managed this fund since its launch in July 2012. Over this time the fund has returned 13.3%* compared with 16.1% for the sector average and 21.1% for the MSCI Emerging Markets Index, although please remember this serves as no guide to future performance. He does, however, have a longer track record managing the JPMorgan Global Emerging Markets Income Investment Trust since July 2010, over which time the trust has outperformed the benchmark index. It is managed in a similar fashion as the JPMorgan Emerging Markets Income Fund although the performance will be different.
|Annual percentage growth|
| June 13 -
| June 14 -
|JPMorgan Emerging Markets Income Fund||-4.0%||1.6%|
|MSCI Emerging Markets||-3.3%||10.2%|
|IA Global Emerging Markets||-5.0%||7.1%|
Past performance is not a guide to future returns. Full year past performance before this date is unavailable. Source: Lipper IM* to 01/06/2015
Richard Titherington has the support of co-manager Omar Negyal as well as a large team of emerging markets specialists at JPMorgan. While the fund has previously shown signs of promise, we would like to see further evidence the managers can add value through their stock picking over the longer term. As such, we are not currently considering the fund for inclusion on the Wealth 150 list of our favourite funds across the major sectors, however, 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. The managers also have the flexibility to use derivatives should they see fit, although this is a higher-risk approach.
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