- Investments in China held back performance last year
- The manager still sees lots of opportunity in the country and added to investments there
- We like the fact this fund has a well-resourced and experienced team behind it
We like fund managers that give an honest assessment of their fund, even when things don't go quite so well, and the challenges they face.
It's exactly what we got from a recent meeting with Leon Eidelman, lead manager of JPMorgan Emerging Markets. The past year has been a tough one for emerging stock markets, and slightly tougher for the fund , so we used this as a chance to talk through these challenges.
Over the long term we think the fund is well placed to deliver for investors. It's got a big team of portfolio managers and analysts behind it – this is important when it comes to investing in an area as vast as the emerging markets. The team has a good mix of more experienced analysts, with younger ones that bring different perspectives.
The team focuses on companies with good cash flows and low debts, and we think this is a sensible approach to investing in these markets. This fund is one of our favourites for investing broadly across the developing world, so it's currently on the Wealth 50.
How has the fund performed?
The fund's performed well for investors over the long run. But it didn’t do as well as the broad emerging stock market over the past year. This is over a short timeframe though and past performance isn’t a guide to future returns. Emerging markets are also a higher-risk place to invest.
|Annual percentage growth|
|31/01/14 to 31/01/15||31/01/15 to 31/01/16||31/01/16 to 31/01/17||31/01/17 to 31/01/18||31/01/18 to 31/01/19|
|JPM Emerging Markets||21.0||-18.7||45.7||29.0||-8.4|
Past performance is not a guide to the future. Source: Lipper IM to 31/01/2018
Eidelman and his team have increased exposure to Chinese companies in recent years and they now make up around one third of the fund. China was one of the weakest-performing markets last year though, so this didn't help.
The manager knows China faces problems, like the ongoing trade war with the US, slowing economic growth and mounting debts. But he thinks these issues can be overcome. Company earnings have also grown at a healthy rate over the past year and this could ultimately support share prices.
He thinks China looks good value at the moment, so he's added to investments in companies he's still positive about. This includes Hangzhou Robam Appliances and Midea Group, which make home and electrical appliances, and Han’s Laser Technology, which makes equipment such as laser cutting machines.
China's become an increasingly important part of the emerging market universe and we think the team at JPMorgan will make the most of this opportunity over the long run.
Interest rate rises in countries such as the US haven't helped the performance of emerging countries either. A lot of companies previously borrowed money in US dollars to help them invest for future growth. Rising rates could make these debts more expensive to pay back.
Eidelman doesn’t think this will be a significant issue for the fund over the long run because few of its companies have US dollar debts. In fact, some have no debts at all and built up good levels of cash to help support them.
What else has changed?
Eidelman also added to some investments in India after the financials sector went through a weak patch last year. Investments in Housing Development Finance Corporation, HDFC Bank and Kotak Mahindra Bank all helped performance in the final few months of 2018.
Overall, 40% of the fund is invested in financial companies. The manager thinks they'll benefit as consumption patterns in emerging markets change over time. For example, as wealth increases, demand for things such as insurance policies could increase.
A new investment in Brazilian stock market operator B3 was also made last year and this has since performed well. Other investments in Brazil also helped towards the end of the year, including retailer Lojas Renner and financial firm Itaú Unibanco.