Focus on idiosyncratic stocks powers performance for JPMorgan Emerging

Over the year to the end of June 2015, JPMorgan Emerging Markets shrugged off struggling emerging markets to deliver a 7.4% return on net assets and a return to shareholders of 6.6% as compared to a 3.2% return on the MSCI Emerging Markets Index.

Austin Forey, the fund’s manager, says his ideal investment is one whose results in the long term are idiosyncratic; that is to say, driven much more by what the company does rather than by the environment around it. He runs through some of the factors that made a positive contribution to performance. He says they have several clusters of investments in the portfolio in industries where they hope to have found the kind of company-specific trends referred to above. One of these is IT services; the portfolio has held investments in two large established Indian firms, Tata Consultancy and Infosys, for some time. This year they complemented these with three new holdings in more specialist firms, EPAM Systems, Luxoft and Globant, the first two based in Eastern Europe and the latter in Argentina, which carry out high end, sophisticated software development for leading Western clients, including very well-known internet giants. As the ability to gather, analyse and understand data becomes ever more crucial to businesses, many are having to re-engineer their whole operation to cope with the change; this is not a matter of building an internal system in isolation, but of connecting it at the same time to the customers’ own experience via digital communication, as well as developing data analytics which allow firms to understand better their customers’ behaviour and preferences. Firms that can build complex systems to do this have a very large potential market to address.

They also own banks in India and South Africa which, he says, even though they do what all banks do, taking deposits and making loans, have been gaining market share rapidly; in part because they started small and in part because they are disrupting established incumbents by using technology to achieve lower costs and passing those savings to the customer. These investments are not new to the portfolio this year, but like the IT developers mentioned above, these banks – Capitec and Indusind – were among the leading contributors to portfolio performance during the last year.

And finally, he says they have seen several examples of firms whose superior skill in execution appears to be paying off even more as conditions become tougher. There is nothing to link Lojas Renner, a Brazilian fashion retailer, with AIA, a pan-Asian insurance company, except for the fact that in challenging markets, they are extending their lead over competitors, growing market share at a time when others are struggling; Renner has seen its sales expand when others’ are contracting, while AIA has been increasing its market share strongly in China, a market that still represents a very big opportunity for a business that already has a large regional presence across Asia. These are the kind of outcomes that they like to see in the portfolio’s investments.

JMG : Focus on idiosyncratic stocks powers performance for JPMorgan Emerging

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