Stocks in Focus: JP Morgan Emerging Markets Investment Trust

This week Alastair Macdougall of NW Brown looks at JP Morgan Emerging Markets (JMG), a UK-listed £1.2bn investment trust that invests in companies listed in emerging markets from across the globe.

Austin Forey and his team have managed the Trust’s portfolio since 1994. Over this period they have comfortably outperformed, gaining 693% vs a 465% gain in the MSCI Emerging Markets benchmark index. The team prefer high quality companies, and are prepared to buy on a higher multiple of earnings than the market average if they believe this to be justified by long-term earnings growth prospects.  However, this does not mean that they are willing to pay extremely high valuations for a stock they have identified as attractive. Patience is also fundamental to the process, as the Team’s research has concluded that long-term earnings growth is the driver behind 80% of future returns within emerging market equities.

Potential investments are subjected to a rigorous screening process and the ones that pass are put through a 98-question report that identifies which of the Trust’s three strategies it is best fitted to: Trading, Quality or Premium.   The managers believe that the wider market comprises roughly 75% Trading, 20% Quality and 5% Premium. In contrast, their respective portfolio weightings are 35%, 54% and 11%. 

Austin feels that emerging market equities are looking quite cheap as the market is trading close to 1.6x book value – a 10% discount to the long-term average.  The attractions of emerging markets include structural factors such as growing populations and the rise of the middle classes, which should be of particular benefit to consumer related stocks. However, emerging markets have a well-deserved reputation for volatility and investors should bear in mind the need to ride out short-term set-backs in search of long term growth.

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