Emerging markets have experienced mixed performance in recent years, including over the past few months. While India and Brazil have struggled to contain rising coronavirus cases, some Asian countries such as China and Taiwan have so far experienced much less economic damage than many western countries. Many emerging markets also have younger, growing populations with increasing numbers of middle class consumers, which can be a key driver of economic growth.
Focus on quality stocks
Underweight capital intensive companies
But because of the high risks and volatility that emerging markets investing entails, it is best to access these structural growth trends via an experienced fund manager.
So a good option could be JPMorgan Emerging Markets Investment Trust (JMG), which seeks to invest in quality stocks at attractive valuations. The trust was established in 1991 and has been managed by Austin Forey for the past 26 years. He is supported by a large team with extensive experience of emerging markets.
The trust had 40 per cent of its assets in China at the end of August, which is relatively high for a broad emerging markets fund. But the Chinese stock market has been one of the best performers this year, with MSCI China index up 34 per cent over the year to 12 October, according to broker Winterflood.
The trust is one of the largest focused on emerging markets with assets of about £1.5bn. It had 58 holdings at the end of July and has relatively low stock turnover as its managers look for long-term growth companies. The trust’s largest holdings include Chinese internet company Tencent (HK:700) whose gaming division has powered substantial earnings growth for the company this year. Another of the trust’s 10 largest holdings is Alibaba (HK;9988), which continues to have large growth potential because it is China's largest provider of cloud services.
JPMorgan Emerging Markets Investment Trust also holds Taiwan Semiconductor Manufacturing (TAI:2330), a large semiconductor foundry company that recently won business from US tech company Intel (US:INTC), and Sea (US:SE), a Singaporean online services company that has seen phenomenal growth this year.
The trust has substantial overweight exposure to financials, information technology and consumer staples compared with MSCI Emerging Markets Index. And it is underweight cyclical sectors such as energy and materials because Mr Forey and his team prefer investing in companies that can create value without needing a lot of capital.
The trust “has been a consistent performer in a perennially volatile asset class," comment analysts at Winterflood. "The experience provided by Austin Forey is key, alongside the support of JPMorgan’s extensive resources, and the focus on high-quality growth companies should continue to drive performance in the long run.”
Investments in emerging markets are risky due to political and economic instability, and underdeveloped equity markets. Continued trade tensions between China and the US may weigh on Chinese equities, and emerging markets are vulnerable to global economic weakness driven by the coronavirus pandemic.
The trust’s exposure to India, meanwhile, has recently been a drag on performance.
However, the long-term growth prospects for India still look strong. This trust's managers' focus on quality stocks should help to mitigate the risks of emerging markets. And trade tensions between China and the US in the near future should not be a big problem for long-term investors as they have time to wait for markets to recover.
So if you want to tap into some key long-term growth themes via an investment team that has proved its ability to pick the right companies to do this, JPMorgan Emerging Markets Investment Trust still looks like a good option. Buy. MM
|JPMorgan Emerging Markets Investment Trust (JMG)|
|AIC sector:||Global Emerging Markets||NAV:||1,266.9p|
|Fund type:||Investment trust||Price discount to NAV:||8.90%|
|Market cap:||£1.37bn||Ongoing charge:||1.02%*|
|No of holdings:||58*||Yield:||1.20%|
|Set-up date:||16/07/91*||More details:||jpmemergingmarkets.co.uk|
|Source: Winterflood as at 14 October 2020, *JPMorgan.|
|Fund/benchmark||1-year total return (%)||3-year cumulative total return (%)||5-year cumulative total return (%)|
|JPMorgan Emerging Markets Investment Trust share price||19||43||123|
|JPMorgan Emerging Markets Investment Trust NAV||23||39||117|
|Emerging markets investment trusts average share price||3||6||64|
|Emerging markets investment trusts average NAV||6||9||67|
|MSCI Emerging Markets index||12||11||75|
|Source: Winterflood, as at 14 October 2020|
|Top 10 holdings (%)|
|Tata Consultancy Services||3.2|
|Ping An Insurance||3.2|
|Source: JPMorgan, as at 31 Aug 2020|
|Geographic breakdown (%)|
|Source: JPMorgan, as at 31 Aug 2020|