Emerging market (EM) companies are often associated with growth investing, but they also have more to offer. Many EM companies pay attractive dividends and the average yield for stocks in the MSCI EM Index is around 3%¹.

Why focus on dividend-paying stocks?

JPMorgan Global Emerging Markets Income Trust (JEMI) has an investment strategy that focuses on providing attractive income to shareholders while participating in the region’s growth. The portfolio has outperformed the MSCI EM Index over one, three, five and 10 years, while delivering its goal of a yield that is 30% higher than the benchmark – that’s translated to roughly 4%. The trust’s track record also displays its ability to outperform during a variety of market environments—while it tends to do better in value-oriented markets, it’s beaten the benchmark in growth markets too.

JEMI invests in stocks that pay dividends, but that’s not just because of their income potential. The ability to pay a dividend is an indication of a company’s health and its governance, it tends to signal that the company is looking out for the interests of shareholders. However, the portfolio managers don’t always choose the stocks with the highest dividends because sometimes a high yield is the result of a low share price due to a weaker company. Instead, the majority of JEMIs holdings have a yield target of 3% - 6%.

Investing in dividend-paying stocks is also in line with JEMI’s focus on investing in higher quality companies. Additionally, the portfolio managers are looking to invest at reasonable valuations.

Technology stocks remain a key focus

Like emerging markets, the technology sector is more often associated with growth than dividends, but JEMI’s portfolio managers have found many companies with attractive yields, valuations and growth prospects. As a result, technology is a big sector overweight in the portfolio and has led to a high exposure to Taiwan, which is home to several semiconductor manufacturers, including TSMC and Vanguard International Semiconductor, both owned in the portfolio. Vanguard, a downstream server manufacturer, has recently been a top contributor to performance, benefiting from an inflection in demand in cloud service by major technology companies.

JEMI also has a large position in Korea’s Samsung, which is one of the top memory chip makers globally.

Small companies contribute to a big overweight in financials

A diverse selection of companies makes up JEMI’s exposure to financials, the trust’s largest sector overweight. TISCO Financial is a Thai non-bank financial, specialising in auto finance. The company has a good record for asset quality and lending, a strong balance sheet and pays a large dividend to shareholders, giving the stock around an 8% yield¹. This small company’s stock is less liquid but the trust’s longer-term focus gives it the ability to take a large position. JEMI also has a position in Shiram Finance an Indian non-bank financial company similarly specialising in auto finance. The company is well placed to benefit from India’s strong economic growth.

Haina financial, a Korean bank, is a new position in the trust. Haina is one of a number of Korean companies that has been taking measures to raise its valuation by becoming more shareholder friendly under a Korean programme similar to what the Tokyo Stock Exchange started for Japanese companies.

Finding opportunities again in China

China has become a more interesting region again thanks to lower valuations, healthy profits and improving free cash flow and dividends—all signs that companies are becoming more shareholder friendly and not just reinvesting for growth. Tencent is a good example of this trend; it used to be a high-growth stock trading at 35x earnings but now trades 15x earnings with a growing dividend¹.

Another Chinese company, Haier Smart Home, is a good example of the kind of opportunities that the portfolio managers are finding in China. This strong domestic Chinese brand for white goods is a big domestic player that can also export to other regions. It recently raised its dividend payout ratio, which led to 40% increase in the annual dividend.

JEMI is now slightly overweight China due to the number of companies that have become more attractive—this is a big change from the portfolio’s large underweight to China several years ago due to the high valuations. 

Building a portfolio of dividend-payers

The portfolio’s sector and country exposures are largely a result of bottom-up decisions on the individual stocks. While the trust has large overweights in financials and technology stocks, it has less exposure to materials and energy than the benchmark. The large positions in technology have boosted the trust’s exposure to Taiwan. India’s high valuations have left the trust significantly underweight to the country.

JEMI’s portfolio managers continue to look across every country and sector to build the portfolio by searching for companies with attractive dividend yields, fundamentals and valuations.

¹ J.P. Morgan Asset Management as at July 2024

The portfolio is actively managed. Holdings, sector weights, allocations and leverage, as applicable, are subject to change at the discretion of the investment manager without notice.

The companies above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell.

Past performance is not a reliable indicator of current and future results.

Source: J.P. Morgan Asset Management/Morningstar. Net asset value performance (NAV) data has been calculated on a NAV to NAV basis, including ongoing charges and any applicable fees, with any income reinvested, in GBP.

NAV is the cum income NAV with debt at fair value, diluted for treasury and/or subscription shares if applicable, with any income reinvested. Share price performance figures are calculated on a mid market basis in GBP with income reinvested on the ex-dividend date. The performance of the company's portfolio, or NAV performance, is not the same as share price performance and shareholders may not realise returns which are the same as NAV performance.

Benchmark Source: MSCI. Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved, in or related to compiling, computing, or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI's express written consent.

Comparison of the Company's performance is made with the benchmark. The benchmark is a recognised index of stocks which should not be taken as wholly representative of the Company's investment universe. The Company's investment strategy does not follow or track this index and therefore there may be a degree of divergence between its performance and that of the Company.