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JPMorgan Emerging extends its run of good performance

JPMorgan Emerging extends its run of good performance – over the year to 30th June 2019, the return to JPMorgan Emerging Markets shareholders was +21.5% and the return on net assets was +13.3%. This compares favourably against the benchmark index (the MSCI Emerging Markets index) which returned 5.0%. The revenue return per share for the year was 14.85p (2018: 13.40p). The total dividend was raised to 14p from 12.5p.

Manager sounds a note of caution

The margin of performance above the benchmark return has been unusually high: the ‘investment manager contribution’ was 9.2%, more than twice the long-run average. Or to put this another way, well over half the total return on net assets during this past year came from investment policy (‘alpha’) rather than from overall market returns (‘beta’). While very welcome, this is also unusual, and I hope that it doesn’t raise expectations too much as far as the future is concerned. As shareholders, please do not assume that the investment manager has been struck by sudden genius; we make investment decisions without knowing how long they will take to pay off, which means that the returns within any given year are unpredictable and contain elements of chance.” [love this!]

We have a niggle, however. The report talks a lot about markets and politics but not much about which stocks worked and which didn’t. We think this is a shame. We are told what has been added to the portfolio over the past year – All of the four new positions added to the company’s portfolio during the year were from China. They are: Kweichou Moutai, a spirits producer and owner of an iconic Chinese brand; Foshan Haitian, the largest producer of soy sauce in the world; Midea, one of the leading global producers of domestic appliances, and Yum China, the largest operator of fast food format restaurants in China. Are these good businesses? Well of course, we think so. I admit that few things grab my attention during a company meeting like the comment “we can trace our history back three hundred years”. Already, such a sentence tells you a lot about a company’s duration, and by extension, about the nature of the industry in which it operates. Two of our four new additions can boast such a pedigree. Longevity alone, though, does not make for a good business. The four companies we added in China also share certain economic characteristics: they all generate positive operating cash flows consistently; they have all shown sustained growth in dividends per share; they all generated returns on equity of 25% or more in their latest financial years, in three instances achieving this in spite of large cash piles on their balance sheet; and they are all leaders in their respective industries. We hope that they will prove to be worthy and profitable additions to the company’s collection.”

JMG : JPMorgan Emerging extends its run of good performance

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