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This income fund offers a lower risk way to access emerging markets
Growth-focused investors cannot ignore emerging markets, as we discuss in this week’s Investment Trusts section, yet investing in far-flung developing economies comes with volatility.
Investors seeking a smoother ride could look to JPMorgan Global Emerging Markets Income Trust (JEMI) as a lower risk way to access emerging markets, since it invests in stable companies with regular income and good governance structures.
Despite such reassuring characteristics, it is important to stress that emerging markets in general may not be suitable for investors with a nervous disposition or a dislike of share prices regularly moving up and down.
Trading on a modest 2.1% discount to net asset value (NAV) with a 3.6% historic yield, the JPMorgan fund generates a dividend income with long-term capital growth from a diversified book of income-yielding companies.
This income strategy, given its ‘value with quality’ characteristics, could see it move around less than other emerging markets funds during choppy market conditions, trade tensions and economic setbacks.
Managed by Omar Negyal, Jeffrey Roskell and Amit Mehta, the fund invests in relatively high-yielding stocks with strong fundamentals and potential for long-term growth.
Negyal says he focuses on firms which are able to invest in their businesses to generate strong earnings growth. He also pays close attention to the free cash flow required to fund a dividend policy and companies with strong balance sheets.
He says such characteristics let him form a view on dividend sustainability and the growth potential of those dividends on a multi-year view.
‘The overall yield of the portfolio should be at least 30% higher than the broader market,’ he adds. Negyal regards a company’s desire to return cash to shareholders as a tangible and positive governance indicator too.
The core of the portfolio is comprised of stocks with yields of between 3% and 6%, yet offering ‘moderate growth over time’, flanked by higher yield and superior dividend growth stocks.
The portfolio includes stakes in Taiwan Semiconductor Manufacturing, Chinese financial services group Ping An Insurance and Mexican airports operator Grupo Aeroportuario del Pacifico.
‘The emphasis on yield has led to a portfolio that is notably different from the benchmark,’ say analysts at financial services group Winterflood. ‘While this may lead to periods of underperformance relative to the index, we believe that the fund’s emphasis on good quality companies paying attractive dividends will allow it to outperform over the longer term.’