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Jupiter Emerging and Frontier Income held back by small cap and frontier exposure

Jupiter Emerging and Frontier Income - Off to a great start

Jupiter Emerging and Frontier Income held back by small cap and frontier exposure – Jupiter Emerging and Frontier Income has published its first set of results covering the period from its launch to 30 September 2018. Over this period it lagged its benchmark; the NAV total return was 2.3%, while the MSCI Emerging Markets Index returned 6.6%. It paid dividends totaling 4p per share. The share price return was 3.0%.

[QD comment: It is a shame that JEFI lost a little ground against its benchmark after making a good start. We have written a couple of notes (A very successful fundraise and Off to a great start) about the trust which explain the managers’ approach to running the fund and discuss some of the key holdings]

Extract from the managers’ report

Over the period, the portfolio delivered a NAV total return (including the two 2p dividends paid) of 2.3% (using the launch price of 100p as a base), while the trust delivered a total price return of +3.0% – both figures lagged the MSCI Emerging Markets benchmark (+6.6%).

The weaker than benchmark performance has largely been due to several headwinds. Notably, the weak performance of emerging market small caps and frontier markets; returning only +1.0% and +1.2% respectively. While the return from these areas of the market has been disappointing over recent history, we continue to believe that some of the most attractive bottom-up opportunities globally are within these areas. Moreover, investing beyond emerging market large caps provides scope to deliver greater geographical and sector diversification; a characteristic which should over time deliver lower levels of volatility.

In terms of individual stock performance, return dispersion has been high. Chroma ATE has been the most material positive contributor to returns. The Taiwanese electronics company sells into a diverse range of industries including semiconductors, electronic vehicle batteries, solar, LED and 3D sensors. Chroma’s strong share price performance has been driven by better-than-expected earnings and positive management guidance.

Other positive contributors included Salmones Camanchaca, a Chilean Salmon producer. The firm has recently invested in a number of projects, which in our view will deliver an attractive return on investment. Moreover, the firm’s low level of leverage provides it flexibility to invest into further new projects, and there is scope for organic growth as management improve the efficiency of existing facilities.

The trust’s holding in Cambodian entertainment and gaming operator NagaCorp also performed well over the period. The company is based in the capital – Phnom Phen, but only caters to foreign tourists, (mostly from South East Asia and China). Structurally the business continues to benefit from rising tourism in Cambodia, a trend supported by increasing direct flight routes into Chinese cities. Moreover, at a company level, rising utilisation at Naga 2 (a recent extension) and renovation within Naga 1 mean that there is still scope for further organic growth.

The position that most materially detracted from performance was Ascendis Health in South Africa. The firm is a company that has made several European acquisitions in recent years and we believe these acquisitions will generate significant value for Ascendis shareholders over time. However, the Steinhoff scandal, which bears no relation to Ascendis at all, has made domestic South African investors highly sceptical of any company making overseas acquisitions. As such, the stock has undergone a derating, which we view as temporary and unjustified.

Another detractor was Bizlink, a Taiwan based wire-harness producer. The firm is a beneficiary from a structural rise of electric vehicle demand, with clients including Tesla. The significant decline in the share price has been a combination of Tesla supply chain concerns and margin pressure due to a rise in operating expenditure not matched by sales growth during one quarter. We have continued to communicate with management and believe that the investment case remains attractive, which should be better reflected in the valuation as the company delivers on earnings growth.”

JEFI : Jupiter Emerging and Frontier Income held back by small cap and frontier exposure

 

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