Five key themes: A flexible approach to finding high-conviction opportunities in today’s global markets - J.P. Morgan Asset Management

Five key themes: A flexible approach to finding high-conviction opportunities in today’s global markets

Contributors Shane Duffy, Thomas Murray

As U.S. markets enter the later stages of an economic expansion, it’s more critical than ever to ensure investors are looking outside U.S. borders to international markets still in their earlier stages of economic recovery. With a bottom-up, flexible approach to pursuing their highest-conviction ideas across international markets, Shane Duffy and Tom Murray, portfolio managers for JPMorgan International Unconstrained Equity Fund (IUESX), share five key themes as they navigate today’s rapidly changing global landscape.

1. Finding value in Europe

Europe continues to look cheap – both historically and relative to the U.S. – with a forward P/E below its 25-year average. Earnings in Europe – which have not yet recovered from pre-crisis peaks – have started picking up as the macro backdrop turns more positive. In fact, the European economy has accelerated at its fastest pace since 2011.

While we see plenty of opportunities among Europe’s cheapest stocks, we look to invest in only our best ideas – and only where we see sound, improving fundamentals. In the financial sector, we are seeing stronger capital levels in European banks, increased visibility on regulation and more capital being returned to shareholders. As the European economy continues to improve, banks are lending again and loan growth has expanded, while a rising interest rate environment is positive for profitability.

We like ING, the largest bank in the Netherlands. Unlike many of its peers, ING has created a unique customer-centric model with robust profitability based on resilient margins, excellent asset quality and a solid digital banking platform. Its commitment to a progressive dividend policy makes it one of the most attractive capital return stories in the global banking space.

Source: ECB, FactSet, J.P. Morgan Asset Management. Based on net % of Eurozone banks reporting positive loan demand. Eurozone shown is the aggregate of the 19 countries currently using the Euro. Guide to the Markets – U.S. Data as of 3/31/18. Chart is for illustrative purposes only. Past performance is not indicative of future results.

2. Benefiting from ecommerce growth and disruption

International markets offer some outstanding tech and growth franchises. There are many examples associated with the smartphones we use on a daily basis, including ASML in Holland for the lithography machine that makes chips, Fanuc in Japan for machines that build casings and Samsung in Korea for batteries and NAND flash memory. With a supply chain as global as its customer base, we have the ability to exploit all of these opportunities.

Even as smartphone demand slows, we see opportunities to apply this technology elsewhere – in the auto sector, the internet of things and artificial intelligence – as the proliferation of semiconductors lengthen and smooth this cycle. The emergence of genuinely disruptive ecommerce platforms, such as Delivery Hero and Zalando in Europe, are changing the way we order food and shop for fashion. And, China is trying to replicate the power of platforms such as Facebook, Google and Amazon in their own market.

3. Banking on financial services in Asia

The growing middle class in countries such as India and China is creating opportunities in financial services. While only 12% of India’s population is considered middle class today, we project this to grow exponentially to almost 80% by 2030. This means over one billion people moving to urban locations, enjoying more disposable income and demanding more products and services. 

With more people that have never had a bank account – 400 million, in fact – than the entire U.S. population, India is truly under-banked. We believe HDFC Bank – one of India’s largest non-state banks – is well positioned as the growing middle class adopts products such as home loans and credit cards. As well as offering innovative financial products, HDFC originates and finances many of the country’s mortgages, and should benefit from increased loan growth due to Prime Minister Narendra Modi’s push to expand access to affordable housing.

Source: Brookings Institution, United Nations, J.P. Morgan Asset Management. Illustrates middle class as a % of total population. Middle class defined as $3,600-$36,000 annual per capita income in purchasing power parity terms. Historical and forecast figures come from the Brookings Development, Aid and Governance Indicators. Guide to the Markets – U.S. Data as of 3/31/18. Chart is for illustrative purposes only. Past performance is not indicative of future results.

4. Focusing on a capex recovery

Global GDP growth has been recovering from the depths of the financial crisis, supporting corporate earnings and providing a positive backdrop for corporate capital expenditure (spending on acquiring, upgrading and maintaining long-term assets such as property and equipment).

In 2017 we saw significant capex momentum for the first time in four years. Komatsu – a Japanese mining and heavy machinery and equipment manufacturer – is positioned to benefit from this global capex recovery, tapping into a reflating mining sector and an improved Chinese construction market, as well as infrastructure spending in both the U.S. and emerging markets.

5. Uncovering opportunities in capital discipline and restructuring

European companies have often been accused of being poor stewards of capital, not doing enough to return capital to shareholders through dividends or share buybacks. There is also a clear profitability gap between European and U.S. companies (see chart). Now, many European companies are tackling both challenges. We look for companies with concrete plans to substantially improve earnings and reward shareholders.

One example is Unilever, the global consumer products company offering more than 400 household-name brands around the world. After years of sub-industry returns, the Kraft Heinz bid in February 2017 forced Unilever to raise its game, releasing new targets to expand margins to global levels by 2020 and to sell low growth assets. We have already seen a pickup in earnings, dividends and even management’s focus to buy back more shares.

Source: MSCI, Standard & Poor’s, FactSet, J.P. Morgan Asset Management; data as of 3/31/18. Operating profit margins (%) based on earnings per share divided by sales per share using the S&P 500 Index for the U.S. and the MSCI Europe Index for Europe. Earnings per share and sales per share are based on the last twelve months of available reported data. Chart is for illustrative purposes only. Past performance is not indicative of future results.

Harness a world of opportunity

Gain flexible access to the best opportunities across international developed and emerging equity markets with JPMorgan International Unconstrained Equity Fund (IUESX). This actively managed, high conviction portfolio of 40-50 stocks seeks to maximize return potential by pursuing only the team’s best investment ideas outside the U.S., while keeping an eye on volatility.

Learn more about JPMorgan International Unconstrained Equity Fund.


The following risks could cause the fund to lose money or perform more poorly than other investments. For more complete risk information, see the Fund’s prospectus.

International investing involves a greater degree of risk and increased volatility due to political and economic instability of some overseas markets. Changes in currency exchange rates and differences in accounting and taxation policies outside the U.S. can affect returns.

The prices of equity securities are sensitive to a wide range of factors, from economic to company-specific news, and can fluctuate rapidly and unpredictably, causing an investment to decrease in value.

The securities highlighted above have been selected based on their significance and are shown for illustrative purposes only. They are not recommendations.

Related funds

International Unconstrained Equity Fund
The Fund focuses on maximizing return potential by flexibly pursuing our best investment ideas across all regions and sectors of the international markets.