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    1. JGGI: Assessing the emerging market landscape

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    JGGI: Assessing the emerging market landscape

    J.P. Asset Management

    September 2022

     

    The JPMorgan Global Growth & Income Trust (JGGI) is a style agnostic, concentrated, global best ideas portfolio. Our investment process aims to identify companies with long-term capital growth potential, while the trust is also committed to paying an attractive quarterly dividend. The unconstrained nature of the trust means it has the ability express our highest conviction, stock specific views and not allocate to those companies where we believe them to be structurally challenged over the long term.

    Currently, against a backdrop of acute global market volatility and macroeconomic uncertainty, we have been consolidating risk and defending income. This means overweight exposure to developed markets (primarily to Europe and the US), and reduced exposure to emerging markets (EMs). Over the long term we see lots of opportunities in EMs, but the immediate outlook is challenged and we find better stock ideas elsewhere.

    China has been the posterchild for emerging markets and has experienced a particularly turbulent period, with government crackdowns on technology and real estate firms as well as its prolonged Covid lockdowns, which has dragged on the domestic and global economy. Further weighing on emerging markets is the rising dollar, and with US interest rates priced to continue rising for some time, there seems no respite in sight. These factors have tilted the risk-reward scale in favour of risk.

    Mitigating the risks

    EMs have plenty of compelling long-term drivers, such as a widening and increasingly wealthy consumer base, and a growing share of the global economy. Therefore, we maintain portfolio exposure, but given the current risks, we’ve opted to gain much of this exposure through US- and Europe-listed companies with extensive emerging market operations. This approach gives the portfolio access to the long-term growth drivers, without the short-term risks of an EM listing.

    This can be seen by comparing the revenue exposure of the trust to the stock exposure. While the weighting of emerging market-listed equities is relatively modest – just 2.1% – our portfolio holdings derive 24% of their revenue from this segment of the world.

    JGGI portfolio weights and revenue exposure

    Source: FactSet, J.P. Morgan Asset Management. Data as of 29 July 2022.

    Portfolio holdings

    There are a few notable examples of US- or Europe-listed equities in JGGI that have significant emerging market exposure. Chief among them is French luxury and cosmetics conglomerate LVMH1 . The company has a remarkable track record of growth, posting 13 consecutive quarters of double digit organic growth prior to the Covid pandemic and we believe the long-term underlying trends of aspirational luxury remain structurally positive.

    Our investment rationale behind the position has been the growth the company has demonstrated in emerging markets. In fact, LVMH now derives around a third of its revenue from China as of 31 December 2021 underlining the country’s growing affluent middle class and demand for luxury goods. This demand remained resilient even under the cloud of a fresh wave of Covid lockdowns in China with the brands sitting under LVMH’s umbrella continuing to deliver revenue growth.

    Investment objective

    To provide superior total returns and outperform the MSCI All Country World Index over the long-term by investing in companies based around the world. The Company makes quarterly distributions, that are set at the beginning of each financial year. On aggregate, the intention is to pay dividends totalling at least 4% of the NAV at the time of announcement. The manager is focused on building a high conviction portfolio of typically 50 - 90 stocks, drawing on an investment process underpinned by fundamental research. Portfolio construction is driven by bottom up stock selection rather than geographical or sector allocation. Currency exposure is predominantly hedged back towards the benchmark. The Company uses borrowing to gear the portfolio within a range of 5% cash to 20% geared under normal market conditions. The Company will repurchase its shares with the aim of maintaining an average discount of around 5% or less calculated with debt at par value.

    Risk profile

    • Exchange rate changes may cause the value of underlying overseas investments to go down as well as up.

    • Investments in emerging markets may involve a higher element of risk due to political and economic instability and underdeveloped markets and systems. Shares may also be traded less frequently than those on established markets. This means that there may be difficulty in both buying and selling shares and individual share prices may be subject to short-term price fluctuations.

    • Where permitted, a Company may invest in other Investment Funds that utilise gearing (borrowing) which will exaggerate market movements both up and down.

    • This Company may use derivatives for investment purposes or for efficient portfolio management.

    • External factors may cause an entire asset class to decline in value. Prices and values of all shares or all bonds and income could decline at the same time, or fluctuate in response to the performance of individual companies and general market conditions.

    • This Company may utilise gearing (borrowing) which will exaggerate market movements both up and down.

    • This Company may also invest in smaller companies which may increase its risk profile.

    • The share price may trade at a discount to the Net Asset Value of the Company.

    1The companies above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell.

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    This is a marketing communication and as such the views contained herein do not form part of an offer, nor are they to be taken as advice or a recommendation, to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of the products or underlying overseas investments. Past performance and yield are not reliable indicators of current and future results. There is no guarantee that any forecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment products, there can be no assurance that those objectives will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. Investment is subject to documentation. The Annual Reports and Financial Statements, AIFMD art. 23 Investor Disclosure Document and PRIIPs Key Information Document can be obtained free of charge in English from JPMorgan Funds Limited or at www.jpmam.co.uk/investmenttrust. This communication is issued by JPMorgan Asset Management (UK) Limited, which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No: 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.

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