JPMorgan Emerging Europe, Middle East & Africa Securities reports on car crash year

JPMorgan Emerging Europe, Middle East & Africa Securities (JEMA – formerly JPMorgan Russian Securities) has published its annual results for the year ended 31 October 2022. Although it has broadened its mandate since, JEMA’s investment objective was focused on Russia at the time of that country’s invasion of Ukraine, which occurred during the period under review. That market effectively became uninvestable with the sanctions that resulted, particularly the blanket ban on foreigners buying and selling Russian securities and repatriating profits from such investments, meaning that the overwhelmingly majority of JEMA’s investments had to be written down to zero. It should therefore come as no surprise that this set of results are a bit of a car crash – a decline of 94.9%, during the period, on a total return basis. Reflecting this, the investment manager’s review is very short with commentary restricted to recent personal changes. [QD comment: JEMA passed its regular continuation vote just after the invasion of Ukraine. At that time, it was too early to tell how things might progress and it is understandable that the directors recommended continuation. However, at this size, JEMA doesn’t look like a viable fund to us, at least not in its current form. JEMA is somewhat stuck in a catch 22 – the fund needs to be a sensible size to be viable, but the board has said that it will not raise more cash which would dilute the potential upside to existing shareholders, should the conflict end and Russia were to become investable again. We think that creating a separate share class to house the rump Russian exposure would make the most sense, for those that want to continue. However, we think it makes more sense to call time on the fund now. It seems to us that the current situation is delaying the inevitable and just drawing out a slow agonising demise. In the meantime, given that the board wish to continue with the fund, it would help to have some commentary from the manager on what’s happening with the companies in the portfolio, irrespective of whether they are valued at zero or not. In its current form, the investment manager’s review gives shareholders no insight as to why they should even wish to bother continuing with an investment in JEMA.]