We chat with Emily Whiting about JPMorgan Emerging Markets Growth & Income #JMGI #TSMC #SKHynix

In our latest special podcast, Steven Frazer and Ian Conway are joined by Emily Whiting, Emerging Markets and Asia Pacific investment specialist at JPMorgan Asset Management. 

The discussion focuses on JPMorgan Emerging Markets Growth & Income (JMGI), which aims to provide a superior total return by investing in high-quality companies across the market cap spectrum delivering sustainable long-term growth.

Our special guest tells us what sets JMGI apart from other trusts in the Global Emerging Markets sector. Whiting also explains how JPMorgan’s specialist ’on the ground’ teams meet and research thousands of companies each year. This local presence gives the portfolio managers an 'edge' in picking the best opportunities.

Transcript

SPEAKER_00 0:06

Hello and welcome to the latest special edition of the Sheriff Podcast. We're delighted to be joined again by Emily Whiting, Emerging Markets and Asia Pacific Investment Specialist at JP Morgan Asset Management. Emily, welcome back to the show.

SPEAKER_02 0:20

Thank you for having me.

SPEAKER_00 0:22

Now we talked a few months ago about JP Morgan Asia Growth and Income, or Jaggy. And I'm delighted to tell you that it's one of the most viewed and most downloaded podcasts on the site. Which I think tells us a lot about the level of interest in emerging markets and Asia Pacific in particular. Today, though, we're looking at JP Morgan Emerging Markets Growth and Inc. And Steve, you've got a few questions.

SPEAKER_01 0:48

Yeah, I mean, uh, hello, Emily. Um I think that Ian's made a really good point there about there's clearly a lot of appetite in the retail market for Asia and emerging market exposure. Um why don't you tell us what, as you see it, what are the compelling reasons for a retail investor to invest in um Asia and emerging markets, and and why use an active fund like um like JNGI as opposed to a low-cost ETF, for example?

SPEAKER_02 1:14

Okay, so look, first of all, thank you for having me back. Um and hopefully we continue to keep the uh the listener numbers high. But look, I think emerging markets and Asia interest people, they excite people, they offer something really different. You have clearly a really wide breadth of markets. This isn't just like looking at the US, which is clearly just one large market. Loads of different markets, loads of different business cycles, drivers. And I think really importantly, in the last year, you've seen them really captivated by that technology story that's maybe been led by the West, but Asia is the engine of it. You see Korea leading in memory, you see Taiwan leading in semiconductors, and I think a lot of the focus has been on those two markets. Maybe part of the interest is those big market heavyweights of China and India that we've all spent years talking about have been left in the shadows, but still offer great opportunity. They're both markets and countries with over a billion people living, working, and consuming there. And so I think it's the breadth and depth of opportunity, the fact that the valuations still look fairly attractive compared with the rest of the world, and that it's just an exciting, colourful, colourful region. Um, I think the other point to your secondary question is an investment trust allows us as investment managers real attitude, right? We have the ability to go anywhere. I think the vehicle offers you a lot of different mechanisms around the likes of the enhanced dividend, which we'll talk about, or gearing or holding small account names. And so, whereas uh ETFs and active ETFs offer a low-cost opportunity, I think for a lot of investors, when they're looking at this region, they say, if I'm in, I'm in, just make me the alpha and find me the opportunities. And so, therefore, I think the investment trust allows you to do that. And that's something that we've seen great interest in across our range for all the points that we've just mentioned.

SPEAKER_00 3:05

Now, um, you mentioned um the enhanced dividend angle of it because I was going to ask you this is the emerging markets growth and income trust. You've also got an emerging markets dividend income trust. Jemmy, what's the difference? What's the nuance?

SPEAKER_02 3:21

Yeah, so and you're right, there is a nuance to it, and I think they they sit very differently in a portfolio. So they're both looking at the same emerging markets investment universe to start with, but the angle they take onto that universe differs. So for JMGI, which we're focusing on today, emerging markets growth and income, we're very much looking from a growth aspect, right? We want companies that we believe can offer superior earnings that you compound over the long term. GME, emerging markets dividend income, as the name suggests, looks for the dividends. Okay, so straight away it's looking for companies that we believe are mature enough and have a strong enough cash flow that's um offers certainty that they can pay out a consistent dividend stream. So those companies differ typically by way of some of the markets and the sectors that they're in. You want those long-term compounders, strong balance sheets, superior corporate governance because it shows their focus on the dividends and giving back to minority investors. And what it means is that the overlap is less than 50% when you look at those two products. So they sit very differently. Whereas JMGI, the income component, just to sort of round that out, again is one of the things that a vehicle allows you to do. The board have said they want to pay out four quarterly dividends amounting to 4% of NAV over the course of a financial year. It doesn't change what the fund managers are doing. I think that's the difference. So for the JEMI fund managers, they actively want companies that pay dividends. For JMGI, that's not as important, but you still can receive an income stream.

SPEAKER_01 4:55

That's a really interesting differentiation, Emily. And that tells me that that these two trusts can appeal to different types of retail investors, but at the same time, they can also stick together in a portfolio to give you different angles into that, into that far east Asia PAC market. Just JMGI, I mean, I know it's very heavily focused at the moment in terms of its portfolio weighting towards technology, um, some of those really big companies. I just wonder about how the trust feels about that that situation at the moment, uh, given there has been some volatility in recent weeks around CapEx, around circular funding, to some of these more technical aspects that investors are starting to worry about. Um I just wonder about you know, your are you maybe over-leveraged to some of these names?

SPEAKER_02 5:38

I I think that's a great observation by way of uh the volatility that you've seen across these names. I think it's it's not surprising maybe that as names get bigger and there's more excitement, as much as you get a decent size upswing, we need to be aware that it could come down by a similar level. And you've clearly seen a very volatile July, um, especially in the Korean market, for example. Now, to us, those three businesses continue to be global tech leaders, right? They have all at various points in time hit um value of over a trillion US dollars. They have dominant market positions, they have strong balance sheets. I think what we've seen is they have very um strong and robust barriers to entry. So they are fundamentally good businesses that we don't see going anywhere. But I do think you're right. I think the market is becoming more concerned around AI spending and the return on investment. Um, but we really have a view, we clearly go out and kick the tires on both the supply and the demand side for all of these businesses because to the points you make around circular funding and so on. Demand for advanced chips and memory is a critical part of the value chain. Um these companies enable that technology. And so, yes, we are very conscious and always looking at the exposure that we have within JMGI to these businesses, but right now, when we look across the rest of the investment universe, we feel those positions are well placed. Um, but that doesn't mean that we rest on our laurels because a good company doesn't always remain good. I think we've all seen the history of investing, um, disputes that very strongly. Um, but right now we do feel very comfortable with where they are and what they can offer to our investors in JMGI.

SPEAKER_01 7:18

I just want to clarify, I think I failed to mention the names of the three you're talking about specifically are TSMT, SK, Heinex, and of course Samsung. So these are the three heavyweights of of the South Korean and Taiwanese markets. Yeah.

SPEAKER_00 7:31

Yeah. And that's interesting because obviously those that they have been a phenomenal success this year, even with the volatility, they've been great. And you mentioned earlier how the the big markets by uh you know back in the day by market weight were China and India. Um, so are you seeing more opportunities in those markets? Because have they kind of been left behind, as it were?

SPEAKER_02 7:53

I think they have been left behind very much so. They've been in the shadows um over the last year or so, but it doesn't mean they've gone anywhere. So, yeah, you're right. I think broadly we would say there is opportunity coming through. I think you still need to be very selective in both markets. If we think about India to start with, we've always all known that India is an expensive market. Valuations have clearly come down a bit, but it's still only what I would term fair value. We're not sort of at a cheap level. But there are names that are starting to really come back and show themselves as offering opportunity domestically in India. And then from China, I think even more so it's about being selective. Um, you have seen a lot of exporters in China do incredibly well, really start to gain market share and sort of overtake, in many cases, developed market incumbents in areas such as construction, renewable energy, and so on. So there are some very good opportunities, but it's still very much about finding the right businesses. So, as much as I talk about these markets from a top level, it's always worth remembering we're not taking a view on do we want to be overweight or underweight China? We are saying, is there a good business? Oh, look, it happens to be Chinese. And increasingly, yes, I would argue that as we move through the year, we are starting to kick the tyres more on a number of these Chinese and Indian opportunities. Um, and I think that's exciting. I think it's exciting that there is more to emerging markets right now than just technology in North Asia.

SPEAKER_01 9:19

It's it's a great point because uh, I mean, there's um the big issue, of course, hanging over Chinese stocks in particular, tech stocks in particular, has been, of course, the regulatory argument and about the pressure, political pressure put on by the US and Western Europe, etc., which I guess has led a lot of uh to lots of retail investors to saying, you know, I'd rather be hands-off, which is perhaps where you can get a real a real advantage by having your hand held by a good investment trust team who's got feet on the ground.

SPEAKER_02 9:46

Yeah, absolutely. I think you've seen a lot of money flow away from these markets to maybe the hotter areas, not just of our region, but globally. Um and and that means you can often take the heat out of valuation opportunities that the company fundamentally is still doing good things. And I think this goes back to your very first question around the excitement and interest people have in emerging markets. I've always thought one of the biggest hurdles for retail investors in emerging markets is confidence. And I think headlines shake confidence quite often. And so, for the likes of China, it's about rebuilding the confidence around that underlying asset. Now, for us, this is our bread and butter, and you're right, I think this is exactly where we can allow broader investors the opportunity to dip their toe into China because we're the experts. We have people on the ground in Shanghai, in Taipei, in Hong Kong, they go out and kick the tires on your behalf. Um, so no, I I think you're exactly right. And I see that as markets start to maybe recover and look to those opportunities again, confidence comes back and it becomes quite self-fulfilling.

SPEAKER_01 10:51

Just uh a final point because we've run out of time, Emily. So, I mean the JMGI's share price performance um is it's it's starting to really recover after a spell of maybe a year, 18 months or so where it was a little soggy. Um, so what how how do you assign that? Why is the the the trust suddenly um just resonating with investors when it wasn't previously?

SPEAKER_02 11:13

Yeah, and and again, I think it's a great observation. I think performance was um underwhelming. Um we always look to to outperform over any time period. We believe we have the tools to be able to do that consistently, but we also need to realise that no one can outperform the market over all types of the cycle and all parts of the cycle. And what you basically saw over the last couple of years is some of the growth stocks fell out of favour. So the names that we would go out and kick the tires on and know they were strong businesses with good market share, the market just wasn't really rewarding them. Um but you've started to see that the market now refocusing on what's really important. I've mentioned several times things like strong balance sheets. That for us is really important. We want to feel confident that the businesses that we're holding have the tools to go out and grow and give back to shareholders as well. And so you're now seeing share prices, especially in the technology side for obvious reasons, really catch up. And a lot of our um high conviction names that we've liked long term starting to be rewarded as investors have recognized the value that they offer. I think what was really important to highlight is through that weak soggy patch of performance, we didn't look to massively change what we were doing, what we were looking for. I think one of the things you want when you invest is a consistency of approach. If you start flip-flopping between value and growth and momentum and whatever, you're never going to keep track with the market. What we want to be is a long-term position in clients' portfolios where they know that they're well exposed to emerging markets. There will be ups and downs, but over the long term, we've shown this type of process where backed by our strong team, we go out and find high-quality businesses, can deliver. So, yeah, hopefully uh this performance upcycle continues. Um, and we thank everyone for their patience through that period where it was a U-term slightly soggy.

SPEAKER_01 13:04

Emily, that's absolutely marvellous. And we're out of time now, but that's that's really, really great stuff. Under the under the covers of JMGI, it sounds like a fascinating trust, and it's uh it's taught me it's a good could give me a good few pointers as well. Um, we do these we do these podcast listeners on a regular basis, as you know. Um, so tune in for the next one. See you next time. Thanks so much for having me.

SPEAKER_00 13:26

Take care.

SPEAKER_02 13:28

Bye bye.