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JPMorgan Emerging Markets Investment Trust: November 2021 update

In this investment trust update, Senior Investment Analyst Kate Marshall shares our analysis on the manager, process, culture, cost, and performance of the JPMorgan Emerging Markets Investment Trust.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

  • The trust'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

How it fits in a portfolio

JPMorgan Emerging Markets investment trust 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 trust 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 trusts or funds that mainly invest in developed markets. Investors should be aware that the trust can trade at a discount or premium to Net Asset Value (NAV).

Manager

Austin Forey is manager of this trust alongside co-manager John Citron. Forey is an emerging markets stalwart and has managed this trust since 1994. He started his investment career at JPMorgan prior to this in 1988, and has also spent time researching other markets, such as the UK, so he has a broad knowledge of global investment markets. He has spent most of his career focused on emerging markets though.

In addition to JPMorgan Emerging Markets Investment Trust, Forey runs or contributes to other emerging markets portfolios at JPMorgan, using the same core process throughout. This includes the open-ended JPMorgan Emerging Markets Fund, which he's also managed since 1994. Leon Eidelman was appointed lead manager of the open-ended fund in 2013, and Forey remains a co-manager. The two managers have worked closely for many years.

Citron was appointed co-manager of this trust in March 2021. He joined JPMorgan in 2009 and has been part of the Emerging Markets Asia Pacific Equities team since 2012. Citron is also named on a number of other emerging market portfolios and has worked closely with Forey for several years.

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 trust 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.

While the managers control how the trust is constructed, 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 will 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 currently mainly focus on three core areas: the technology, financials and consumer sectors.

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 trust’s biggest investments currently include TSMC (Taiwan Semiconductor Manufacturing Company), Singaporean internet company Sea Ltd, and software engineering firm EPAM Systems.

The managers take a long-term view when investing in companies, so they don’t make big changes to the trust too frequently. That said, over the past year they have added some investments in healthcare, especially in China. The managers are mindful of the risks of investing in China, not least because of recent regulatory changes. But this means the market has been weaker this year and offered opportunities to invest in shares at attractive prices. They believe China remains a country with high levels of entrepreneurial activity, and the private sector has created employment, innovation, and economic advancement in recent decades. They think it’s unlikely this will change, and that China will remain an important market for investors.

Please note the managers use a high-conviction approach and the top 10 investments make up almost 50% of the trust, so each of these can have a meaningful impact on performance and this increases risk. Overall, though, there are around 60 investments in the trust. The managers can also use gearing (borrowing to invest) and derivatives, which if used adds risk. They can also invest in smaller companies, which also increases risk.

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 trust 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 team, research, and group of funds. We view it positively he, along with other fund 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

The trust's ongoing annual charge is 0.90%. 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.

Performance

The trust has performed better than the average trust in the AIC Global Emerging Markets sector since Forey took over in 1994. This is no mean feat as many emerging markets portfolios struggle to perform so well over such a prolonged period. There have been periods when the trust has underperformed though, and this will happen at times in the future too.

Over the past year, the trust grew 12.68%* in share price terms. The share price was held back by a widening discount over the period though and the trust performed better in NAV terms. At the time of writing, the discount to NAV stands at 8.19%.

Performance was helped last year by the managers' focus on quality companies with sustainable or higher-growth earnings prospects, which were favoured by investors. 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 trust missed out on some of the gains made.

Instead, the managers focus on companies they expect will grow more sustainably over the long run, including those that could benefit from innovation and consumption growth.

Annual percentage growth

31/10/2016 To 31/10/2017 31/10/2017 To 31/10/2018 31/10/2018 To 31/10/2019 31/10/2019 To 31/10/2020 31/10/2020 To 31/10/2021
JPMorgan Emerging Markets Investment Trust PLC 12.64 -4.31 24.94 22.26 12.68
AIC Investment Trust - Global Emerging Markets 8.97 -9.12 10.04 -7.86 25.19

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

FIND OUT MORE ABOUT JPMORGAN EMERGING MARKETS INVESTMENT TRUST INCLUDING CHARGES

VIEW JPMORGAN EMERGING MARKETS INVESTMENT TRUST KEY INFORMATION DOCUMENT



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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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