Top Yielding Emerging Markets Investment Trust

The Bronze Rated JP Morgan Global Emerging Markets Income trust has a yield of 4% - the highest paying closed-end fund in the sector

Simon Dorricott 16 February, 2017 | 12:24PM
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All this week we bring you the best income opportunities across the globe, as picked by top fund managers, professional investors and our own stock and fund analysts as part of Morningstar’s Guide to Finding Investment Income.

Despite changes to management responsibilities, the JP Morgan Global Emerging Markets Income trust (JEMI) remains an attractive choice for investors looking for alternative sources of yield.

This flexibility gives the manager a better chance of achieving income and growth

The lead manager of this fund is now Omar Negyal. He has worked on the fund alongside Richard Titherington since 2012, and was made co-lead portfolio manager in December 2014 and lead manager in May 2015. His influence over the portfolio has therefore increased over time and he has effectively been responsible for stock selection since early 2014. Titherington has stepped back to a comanager role, reflecting the more limited time he has available to manage money now that he has taken on the role of head of emerging markets and Asia-Pacific equities. He can still influence portfolio positioning through a monthly discussion with Negyal, but day-to-day discussions on stocks and portfolio construction are generally held between Negyal and his new comanager Amit Mehta.

The manager remains well supported by the wider team of analysts and managers focused on Asia and emerging markets. Of these individuals, the 19-strong global emerging market sector research team and the newly formed Greater China team of nine analysts are the main source of information. The process employed on the fund is robust. Analysts conduct detailed work to assess the quality of a business before calculating expected returns. The structured approach of assessing five-year growth, dividends, change in valuation, and currency, allows fund managers to select stocks based on drivers that are appropriate for their particular product.

The trust is managed using a bottom-up process that selects stocks using both quantitative and qualitative criteria. The portfolio managers draw heavily on JP Morgan’s global emerging-markets team to assess stocks using a two-stage analysis. First, the analysts assess the prospects for the company and the industry in which it operates. They use a 98-question checklist, looking at the strength and stability of the business, including management quality, capital structure, competitive advantage, and industry structure. Interesting ideas are then evaluated through four sources of return: earnings growth outlook, dividend, changes in valuation, and currency. This results in an estimation of expected returns on a five-year view.

For this income-oriented product, the managers look to invest in names where a significant part of the expected return is driven by the dividend element. The fund targets an overall yield of 130% of that offered by the benchmark index. Approximately 60% of the portfolio will be held in names with a 3%-6% yield, while there is also flexibility to hold lower- and higher-yielding names with a target of 20% allocated to each. The resultant portfolio will typically have 50 to 80 holdings. This fund can also own up to 20% in emerging-markets debt.

This flexibility of investing in stocks with different yield characteristics gives the manager a better chance of achieving the dual objective of income and capital growth.

Although we view the reduced input from Titherington as a negative, the strength of the resources, robust process, and the performance success of the strategy continue to make this an attractive offering. It achieves our Morningstar Analyst Rating of Bronze.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
JPMorgan Global Emerg Mkts Inc Ord132.00 GBX0.38Rating

About Author

Simon Dorricott  is a Senior Fund Analyst for Morningstar

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