JPMorgan Emerging Markets has published results for the year ended 30 June 2024. The company’s NAV returned lagged its MSCI Emerging markets benchmark by six percentage points, returning 7.2% to the index’s 13.2%. The share price return for the period was 4.6%. The full year dividend will be 1.9p, up 15.2% on the previous year.
The company repurchased 41.4m shares equivalent to 3.6% of the issued share capital (ex-treasury), at a cost of £42.8m, adding 0.4% to performance.
Deep dive review
The chair says “”Clearly the company’s performance over the past year is disappointing. To understand why the portfolio underperformed and to scrutinise actions being taken by the manager to enhance investment performance going forward, the board conducted a ‘deep dive’ review in April, in conjunction with the manager.”
Extracts from the chair’s report on the ‘deep dive’
In conducting our in-depth review, the board noted that, since the inception of the Company in 1991, there have been several periods during which performance over a three-year time frame has been negative. Almost all followed strong periods of outperformance. Against this backdrop, the board and manager reflected deeply on the fundamentals of the investment philosophy and reaffirmed its continuing relevance.
Our investment philosophy can be summarised in simple terms – ‘to take a long-term view, to find great businesses, not to overpay for them and to hold for as long as possible.’ The focus is therefore less about ‘value’ or ‘growth’ and much more about ‘quality’.
This focus on quality and valuation also underlies the portfolio managers’ approach with regard to India, which has had the most significant impact on relative performance against the benchmark over the year under review. Although our portfolio has performed respectably in terms of business results, the Indian equity market as a whole, including a number of smaller companies that we do not own, has risen considerably faster and is now very highly valued. To a lesser extent, our Chinese holdings have also been a drag on relative performance, partly due to the lacklustre economic environment and persistently weak consumer confidence, which has led to intense competition in a number of sectors. In retrospect it is clear that we overestimated growth prospects and the stability of the operating environment. That said, China remains home to a large number of globally competitive companies and it will continue to play an important role in the portfolio.
The board welcomes the manager’s efforts to strengthen its research teams in China and India where the company has some of its largest exposures. These additional on the ground resources should assist the portfolio managers in their quest to identify interesting, well-priced, quality businesses with favourable long-term growth prospects.
Following the deep dive review, referred to above, and the evaluation of the investment process and resources, the board is confident that the managers remain well placed to meet the company’s performance objectives going forward.
Meanwhile it is pleasing to note that since the year end, relative performance has improved and share price returns are ahead of the benchmark.
[This seems to boil down to – the company underperformed because it was underweight India and overweight China – it was not alone in this.]
Tackling the discount
The board implemented a series of measures to narrow the discount:
- a material reduction in fees that took place from 1st July 2023. The trust’s ongoing charges ratio is the lowest in its sector;
- enhancing the pace of share buybacks;
- growing dividend distributions, with dividends in the last three years rising by 12.1% on an annualised basis;
- utilising new marketing channels, to extend access to commentary and views from our managers, Austin Forey and John Citron;
- introducing a five-year performance-related conditional tender offer for up to 25% of the outstanding share capital, commencing 1st July 2024.
JMG : JPMorgan Emerging board initiated performance review
