JPMorgan Emerging Markets (JMG) has announced its annual results for the year ended 30 June 2022. During the year, JMG provided NAV and share price total returns of -17.3% and -20.6% respectively, both underperforming its benchmark, (the MSCI Emerging Markets index) which provided a total return of -15.0% (all in sterling terms). Stock selection was the main reason for the underperformance against the benchmark over the year. The key detractors from performance against the index over the year were the underweight positions in the energy sector and the Middle East coupled with sharp falls in some of the portfolio’s best performing growth companies where the valuations had become stretched, particularly when looked at against an environment of higher interest rates. The Company had less than 1% in Russia before the invasion of Ukraine and this underweight position against the index was a positive. However, the valuation of Sberbank (the only Russian company held) had to be written down to virtually nothing.
The managers, Austin Forey and John Citron, say that portfolio turnover remained low at 10% and there were no new names added to the portfolio and there were no full exits either. However, the biggest change was a large reduction in two information technology holdings, EPAM and Globant, purely on the grounds of valuation. Both stocks continue to be held in the portfolio, but at reduced weights. The managers say that this was one instance in which a decision motivated purely by high valuations proved justifiable. The largest addition to the portfolio was Samsung Electronics, the leading global producer of DRAM memory chips. The managers say that they do not expect the overall shape of the portfolio to change dramatically as they look forwards (high oil prices do not suddenly make oil a great industry to invest in, in their view). Instead, they are looking to find the very best companies discounted unreasonably by a market that has been spooked by short term worries.