JPMorgan Emerging Markets: November 2021 fund update

• The fund's managers have years of experience of investing in emerging markets
• 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 provides the potential for long-term growth, though 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 in a portfolio

The JPM Emerging Markets fund provides broad exposure to emerging economies, including 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 JPMorgan Emerging Markets in 2013 and was appointed lead manager in 2016. He has final responsibility over which companies make it in and out of the fund, but 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, 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 for the fund to perform better than the broader emerging stock market 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 has 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 could 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 also have the flexibility to invest in higher-risk smaller companies, though they have tended not to venture in this area of the market. They currently mainly focus on three core areas: the technology, financials and consumer sectors.

Over the past couple of years, they’ve reduced investments in the financials sector in favour of technology. Over the past decade or so, the emerging market population has increased its use of financial services in line with rising incomes. Banks and other financial companies have benefited. While the managers think this trend will continue to a degree, they don’t think there will be as much growth as in recent years.

In technology, the managers think the propensity to shop online will continue to grow. And many tech companies are innovative and disrupting the way business has been done in the past, which presents lots of opportunity for growth. Some of the fund’s biggest investments currently include TSMC (Taiwan Semiconductor Manufacturing Company), Singaporean internet company Sea Ltd, South Korea’s Samsung Electronics and software engineering firm EMAP Systems.

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 we think he is dedicated to the emerging markets franchise, with his responsibilities increasing over the years. We view it positively that the managers are incentivised to focus on long-term performance.

The managers consider sustainability issues as part of their investment process. 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 performed better than the average fund in the IA Global Emerging Markets sector since launch in 1994, growing 585.99%* vs 322.10% for the sector. It’s also outperformed since Eidelman has been involved in its management. Many emerging markets funds struggled to perform this well over this prolonged period. There have been periods when the fund has underperformed though, and this will happen at times in the future too.

Performance was particularly strong last year. This was partly down to the managers' focus on quality companies with sustainable or higher-growth earnings prospects, which were favoured by investors.

The fund hasn’t performed as well as the sector so far in 2021. Some companies or areas that were strong last year have been weaker this year, such as Chinese tech companies. Furthermore, businesses that are expected to do better during an economic recovery have performed better since the Covid vaccine announcements in November 2020. This includes materials, industrials, and commodities-related companies. The managers don’t invest as much in this type of company, so the fund missed out on some of the gains made.

Instead, Eidelman and Forey focus on companies they expect will grow more sustainably over the long run, including those that could benefit from innovation and consumption growth. Importantly, many of the companies in the fund have continued to grow their earnings this year, which suggests they could later see share price growth.

We typically expect the fund to perform similarly to or slightly better than the broader emerging stock market when it's rising and hold up better when it's falling. This won't always be the case though, and sometimes the fund will do worse or better. Remember that all investments fall as well as rise in value, so you could get back less than you invest.

Past performance isn't a guide to the future. Source: *Lipper IM to 31/10/2021.

Find out more about JPM Emerging Markets including charges

JPM Emerging Markets Key Investor Information