Mark Dampier: Five billion reasons you can't ignore JPMorgan
Saturday 03 March 2012
Emerging markets, like equity income funds, have been a favourite sector of mine for some time. I recall looking at one of the first ones, Gartmore Emerging Markets, in 1987. Since that time emerging markets have been in and out of fashion. They rose strongly in the early 1990s only to crash during the latter years of the decade and return to the investment periphery.
Since then they have risen from the ashes to become a major sector to invest in. Investors have embraced the fact that emerging markets are playing an increasingly important role in the global economy. So much so that one of my perennial favourites, Aberdeen Emerging Markets, was effectively closed to new investments recently. I expect others to follow.
Talented groups and fund managers who reach capacity could be an increasing problem for investors, but fortunately there are still some other good-quality teams around to invest with.
One is the JPMorgan Emerging Markets fund managed by Austin Forey. He has been responsible for emerging markets at JPMorgan since 1994, so he has plenty of years of experience behind him. His investment style is not dissimilar to that of the Aberdeen team as he looks to buy solid, reliable businesses and hold them for the long term, by which I mean three to five years. Indeed, there are plenty of holdings that he has held for over 10 years, an example being Walmart Mexico, which he has held since 1991. As such, turnover of holdings is low at about 10 per cent to 20 per cent per annum, so he is not a manager you could accuse of overtrading.
The team is well resourced and split by sectors rather than countries or regions. Ideas come from all members, though Mr Forey researches and meets over 200 companies personally each year. He has a list of around 150 companies he likes and would own if the price is right. He carries out detailed analysis, looking at company balance sheets and cash flow characteristics.
However, this information is widely available and he feels he can add more value by thinking outside the box. For example, he will look at a company's ability to increase its market share, the management's ability to make good judgments, and how they intend to reward shareholders. These are the types of characteristics that can make or break a business and an investment in it.
While economic factors are a consideration, Austin Forey's primary focus is company analysis. An example of a firm he likes is Jardine Matheson. This is an Asian conglomerate involved in supermarkets, restaurants, property, hotels and insurance. Its diverse range of businesses allows it to benefit from increased domestic consumption across Asia.
As an established family business, with a sound balance sheet, the management think conservatively and long term, fitting JPMorgan's investment philosophy.
Alongside this open-ended fund, JPMorgan runs an investment trust, also run by My Forey, whose portfolio is very similar.
Interestingly, its shares are trading on a 9 per cent discount to net asset value presently, though investors should note it could be a more risky proposition as it has the ability to borrow up to 10 per cent of the portfolio value and "gear" returns. At the present time, though, Mr Forey is not sufficiently bullish to use this facility.
Whichever vehicle you prefer, you are investing in an area that has plenty of potential. I like to think of it this way: there are about five billion people in developing countries, many of whom crave the Western lifestyle we take for granted. Increasingly they are able to afford it.
It is therefore not surprising to see the prices of raw materials, food and consumer goods items all buoyant as this block of consumers grows more influential.
It is creating vast opportunities for all types of businesses across the emerging world. When constructing a portfolio I simply don't think you can ignore emerging markets, and a core fund focused on larger business such as JPMorgan's is a good starting point.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.hl.co.uk/independent
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