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
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.
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.
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.