TIDMJMG
RNS Number : 4283N
JPMorgan Emerging Mkts Invest Trust
29 September 2021
LONDON STOCK EXCHANGE ANNOUNCEMENT
JPMORGAN EMERGING MARKETS INVESTMENT TRUST PLC
(the 'Company')
FINAL RESULTS FOR THE YEARED 30TH JUNE 2021
Legal Entity Identifier : 5493001VPQDYH1SSSR77
Information disclosed in accordance with the DTR 4.1.3
CHAIRMAN'S STATEMENT
The Directors set four key objectives for your Company for the
financial year to 30th June 2021. These were to continue the strong
record of investment performance; to reduce the discount of our
share price to the net asset value; to further broaden the
shareholder base; and to ensure that the increasing focus on ESG
and sustainable investing and its more formalised integration into
the Manager's investment process is more fully communicated to the
Company's shareholders.
It is pleasing to report positive progress on all fronts.
Investment performance has once again remained above benchmark and
we have made further progress in broadening the shareholder base to
include more retail investors and wealth managers. The discount of
the Company's share price to net asset value was 6.4% at the end of
the financial year compared with 8.7% the previous year (although
the shares briefly traded at a premium in February and March) and
we are now communicating more fully our ESG credentials to both
existing and prospective shareholders.
Investment Performance
Investment performance in the year to 30th June 2021 was again
positive in both absolute and relative terms. The return to
shareholders was +36.2% over the year and the Company's return on
net assets was +32.7%. This represents outperformance of our
benchmark index (the MSCI Emerging Markets index with net dividends
reinvested, in sterling terms) which returned +26.0%.
Most of the outperformance came in the first half when the
return on net assets was +24.9% against a benchmark return of
+18.5%. However, it was very pleasing that the Company held onto
its gains in the second half despite the significant rotation in
markets towards cyclical stocks and deep value stocks, as these
companies do not generally satisfy the Manager's criteria of
investing in sustainable growth companies and are not widely held
in the portfolio. Performance over the longer term remains very
strong and is also well ahead of benchmark over three, five and ten
years as the graph on page 20 of the Annual Report illustrates.
Stock selection was once again the main contributor to
outperformance over the year with country allocation marginally
detracting. Stock selection has added value every year for the last
seven years and demonstrates the integrity and strength of Austin
Forey and his team's process of investing in companies with
sustainable business models and responsible management. Looking at
the outperformance over the last five years, it is interesting that
the main contributions have come from markets in EMEA (Europe, the
Middle East and Africa) and Latin America, with the Eastern
European, software services company, EPAM, being the outstanding
performer. In Latin America, the two main contributors to
outperformance over the last five years have been Argentina's
Mercadolibre, an e-commerce and fintech business, and the IT and
software company Globant. This illustrates the benefit of being an
active investment manager and having the resources and ability to
find the best stockpicking opportunities across a broad global
emerging market universe rather than confining investment to one
country or area.
This consistent long term outperformance has been recognised by
the Company winning a number of accolades; Following an in-depth
review by Morningstar's research analysts, the Company was recently
upgraded from Silver to a Gold Morningstar Analyst Rating. The
Company also holds a Morningstar Sustainability Rating of Five
Globes, reflecting its strong ESG credentials and it is the only
company, within the emerging markets trust sector, to attain this
Five Globe rating. We are also delighted that Austin Forey received
the Morningstar award for Outstanding Fund Manager this year.
Meanwhile, for the second year running the Company was awarded
Investment Week's Best Emerging Markets Trust and for the third
consecutive year, it was the winner of the Citywire Global Emerging
Market Equities award.
The Investment Manager's Report provides a review of the
financial year to 30th June 2021 and more detail on the investment
performance and how it was achieved.
Discount
The discount (to the cum income net asset value) ended the
financial year at 6.4%. This compares with a discount of 8.7% at
the end of the previous financial year and 3.0% at the half year
ended 31st December 2020. Over the last 12 months the discount on
the Company's shares ranged between 12.8% and a premium of 2.2%,
averaging a discount of 5.0%, which compares with an average
discount of 8.3% for the previous financial year. At the time of
writing the Company's shares are trading on a discount of 7.2%
.
The Board regularly considers the merits of buying back shares
in order to manage the level and volatility of the discount and
will buy back shares if the discount is out of line with the peer
group and markets are orderly. As shares are only bought back at a
discount to the prevailing net asset value, share buybacks benefit
shareholders as they increase the net asset value per share. Over
the financial year 9,261,304 shares were bought back at an average
discount of 9.4% and at a cost of GBP10.6 million. A further
4,898,625 shares have been bought back post the year end. This
compares with buybacks of 24,139,960 shares in the previous
financial year (adjusted for the 10 for 1 share split) at an
average discount of 9.2%. If the shares were to trade at a premium
to NAV for a sustained period of time, the Board may decide to use
its authority to re-issue shares out of Treasury, but only if the
impact of any share issuance after costs is of benefit to existing
shareholders and not dilutive to NAV.
Shareholder Base
The Directors have continued to make progress on their objective
to broaden the shareholder base to include more wealth managers and
retail investors and the share register is now significantly more
diversified than in the past. Institutional shareholders now
comprise 35% of the share register, down from 46% in June 2020 and
65% five years ago. The Company's excellent long-term investment
performance record has enabled both J.P.Morgan and the Company's
broker Stifel to promote the Company to attract new investors.
Revenue and Dividends
The Board has been consistent in communicating to shareholders
that the Company is managed to produce total return rather than any
particular level of dividend and that the level of dividends will
vary. For individual years dividends received in sterling terms may
fluctuate in line with underlying earnings, as well as currency
movements and any changes in the portfolio. In the financial year
just ended the revenue return per share decreased for the second
year running with the revenue return per share for the year falling
to 1.02 pence from 1.17 pence in 2020 (adjusted for the 10:1 share
split on 6th November 2020) which is a decrease of 12.8%.
However, one of the advantages of being an investment trust
rather than an open-ended fund is the ability to use the Company's
revenue reserves to smooth dividends paid to shareholders from year
to year. The proposed level of dividend achieves an appropriate
balance between using revenue reserves to smooth the dividend
payments whilst maintaining some surplus revenue reserves should
they be needed in future. The Board proposes a final dividend of
0.83 pence per share, subject to shareholder approval at the
forthcoming Annual General Meeting ('AGM'). Together with the
interim dividend of 0.52 pence paid in April, the total dividend
for the year will be 1.35 pence against an adjusted 1.42 pence last
year, which is a reduction of 4.9%.
Environment, Social and Governance ('ESG') Issues
The search for tomorrow's emerging market leaders requires our
Manager to look beyond the pure financial attributes of a company
or its shares. In looking for sustainable business models and long
lasting competitive advantages they are increasingly looking at the
environmental, social and governance ('ESG') aspects of the
companies in which we invest. During the year the Directors spent
some time looking at examples of how the Manager's materiality
framework works in practice when selecting stocks and satisfied
themselves that ESG considerations are fully integrated into the
Manager's investment process. The Board shares the Manager's view
of the importance of ESG factors when making investments for the
long term and of the necessity of continued engagement with
investee companies throughout the duration of the investment.
Further information on the Manager's ESG process and engagement is
set out in the ESG Report on pages 15 to 19.
The Manager
Covid restrictions have been a feature of most global economies
over the financial year. J.P.Morgan's analysts and portfolio
managers have been working remotely for most of the financial year
but it is important to note that the investment process and
emphasis on research done through company meetings has continued as
before and a similar number of company meetings have been
undertaken as in the previous year.
The Company was pleased to announce earlier this year that John
Citron, a long serving member of the Emerging Markets Asia Pacific
Equities team, had been designated as an additional named
investment manager assisting lead fund manager Austin Forey on the
Company's portfolio. John is also the named investment manager on a
number of other emerging market mandates and has worked closely
with Austin for a number of years. As an analyst, he was
instrumental in Austin investing in both EPAM and Globant, which
have been significant contributors to the performance of your
portfolio.
The Board monitors the performance of our Manager through its
Management Engagement Committee. It judges performance over the
longer term and thus we remain pleased with the Manager's overall
performance, not only in terms of investment performance but also
in terms of risk management, administration, controls and
compliance, where we continue to be very well served by
J.P.Morgan.
Investment Management Fee
Following a review of fees in the industry, the investment
management fee has been changed. With effect from 1st July 2021,
the investment management fee will be charged at the rate of 0.75%
per annum on the value of the Company's total assets less current
liabilities (previously at the rate of 1% up to GBP500 million and
at the rate of 0.75% thereafter). This will bring the Company's
ongoing charges ratio down to approximately 0.83 which continued to
be the lowest in the emerging markets investment trust sector and
one of the lowest ratios across the emerging markets open ended
investment companies (OEICs) as at the end of the financial year.
The Directors will continue to monitor the Company's fees to ensure
that they remain competitive against the peer group and remain
attractive for our shareholders against the other emerging market
options available to them.
Adoption of New Articles of Association
The Company's Articles of Association, the document that
specifies the regulations for a company's operations and defines a
company's purpose, was last amended following shareholder approval
in 2013. Resolution 15 within the Notice of Meeting, which will be
proposed as a special resolution, seeks shareholder approval to
adopt new Articles of Association (the 'New Articles') in order to
update the Company's current Articles of Association (the 'Existing
Articles'). A summary of the principal amendments being introduced
in the New Articles is set out in the appendix to the Annual
General Meeting Notice on pages 87 to 88 of the Annual Report. The
proposed amendments, if approved, include the possibility of the
Company holding the Company's general meetings by virtual means
only. This will facilitate shareholder attendance in situations
where they are prevented, through laws or regulations, from
attending at a physical location. The Board would like to emphasise
that this format will only be utilised as a contingency to ensure
the continued smooth operation of the Company where physical
meetings are prohibited; 'virtual-only' meetings would only be held
in extreme circumstances as a temporary measure. Other amendments,
which are of a minor, technical or clarifying nature, have been
summarised in the appendix.
Continuation of the Company
Every three years the Company offers shareholders a Continuation
Vote to determine whether the Company should continue in existence.
Shareholders were last asked to vote on this in a resolution put to
shareholders at the 2020 AGM, at which shareholders almost
unanimously voted in favour of the continuation of the Company,
with 99.97% of votes in favour. The next continuation vote
resolution will be put to shareholders in 2023.
AGM
Regrettably COVID-19 restrictions prevented the holding of the
Company's AGM in 2020 in the usual format. The Directors were
disappointed not to be able to have the usual interaction with
shareholders at this forum. Current indications are that a more
familiar format for the AGM may be permissible in November this
year and to that end the AGM is scheduled to be held at 3.00pm on
Thursday 4th November 2021 at 60 Victoria Embankment, London EC4Y
0JP.
We do of course strongly advise all shareholders to consider
their own personal circumstances before attending the AGM in
person. For shareholders wishing to follow the AGM proceedings but
choosing not to attend, we will be able to welcome you through
conferencing software. Details on how to register together with
access details can be found on the Company's website:
www.jpmemergingmarkets.co.uk, or by contacting the Company
Secretary at invtrusts.cosec@jpmorgan.com.
As is normal practice, all voting on the resolutions will be
conducted on a poll. Due to technological reasons, shareholders
viewing the meeting via conferencing software will not be able to
vote on the poll and we therefore encourage all shareholders, and
particularly those who cannot attend physically, to exercise their
votes in advance of the meeting by completing and submitting their
form of proxy. Shareholders are encouraged to send any questions
ahead of the AGM to the Board via the Company Secretary at the
email address above. We will endeavour to answer relevant questions
at the meeting or via the website depending on arrangements in
place at the time.
If there are any changes to the above AGM arrangements, the
Company will update shareholders through the Company's website and,
as appropriate, through an announcement on the London Stock
Exchange.
Outlook
Global economies have recovered strongly from the lows seen at
the start of the pandemic. Worries now centre around the return of
inflation as strong demand is being accompanied by supply side
constraints, with bottlenecks being seen in a number of areas. It
is, as yet, unclear whether the pick up in inflation we are
currently experiencing will turn out to be temporary or of a more
prolonged nature. Stock markets have been fuelled by extremely easy
money monetary policy and low interest rates and, as a result,
valuations of stock markets have risen to levels that are looking
fairly stretched, particularly if there were to be any tightening
in monetary policy or pick up in interest rates.
In emerging markets the outlook has been clouded by the Chinese
authorities imposing regulatory policy changes in a number of high
profile sectors which has resulted in a number of widely held
Chinese stocks seeing sharp falls. This has caused foreign
investors to reassess the valuations that Chinese companies should
command and any resulting volatility in markets could give rise to
some interesting opportunities.
Your Investment Manager has a diversified portfolio that invests
across a wide range of countries and sectors and, as these
economies grow and develop, there will continue to be a number of
new and attractive potential investments. There may be periods when
your Investment Manager's approach of focusing on sustainable
high-quality growth companies underperforms the index but the
Directors believe that over the longer term the strategy will
outperform, as has been the case over a number of years.
Sarah Arkle
Chairman
29 th September 2021
INVESTMENT MANAGER'S REPORT
Objectives & outcomes
Purpose & Approach
The primary purpose of your company remains unchanged: it is to
achieve good investment returns for you, its shareholders. As the
trust's investment managers, we aim to achieve this by taking a
long term approach to investment, based on fundamental research,
and focused on selecting stocks rather than countries or
industries. We continue to look for high quality franchises able to
compound intrinsic value through economic cycles, and when we find
them we expect to own them for a long time.
We also strive to be a responsible and engaged investor in the
companies in which your portfolio is invested. As we have explained
in previous years, a long term approach to investment leads
naturally to a consideration of sustainability in the widest sense,
and we have always sought to incorporate this in our investment
process. This year, we give more details on both our approach and
on portfolio characteristics in our ESG Report, which highlights
how we analyse and engage with our investee companies with regards
to sustainability.
Returns for shareholders
Compared to last year's market gyrations caused by the sudden
spread of the pandemic, this latest twelve month reporting period
has seen a smoother progression in markets, though as always there
have been some marked divergences from that general trend.
Investment outcomes from both the asset class as a whole and from
your company's portfolio have also been better than in the previous
financial year: the benchmark index returned 26.8%, while the total
return from your company's net asset value was 32.8%. The gain in
value experienced by shareholders - the total return in share price
terms - was higher still, at 36.2%, because the trust's share price
discount to net asset value narrowed as well.
Active management
As noted last year, one way of judging the value added to the
trust by active management is to look at what we term the
"investment manager contribution", measuring any excess portfolio
return before costs against the index return in a simple arithmetic
way; over the last twenty years this has averaged 4.5% annually. In
this latest year that figure was 7.5%. This figure will vary from
year to year for a variety of reasons, including the investment
conditions experienced in markets, as well as the success or
failure of your manager's decisions. Clearly the last twelve months
have provided a relatively favourable set of conditions for us,
though as we explain below, there have been plenty of challenges
too.
The year and the portfolio
The past year
From the end of June 2020 to February 2021, emerging equity
markets' recovery from the pandemic-induced sell-off was in full
swing; the benchmark index rose during every month from July to
January except one, appreciating by over 40% by the middle of
February. But that high point in February has not been reached
again since, and was followed by a relatively sharp drop in share
prices, especially in some sectors in China, which was enough to
stall the upwards progression of the asset class overall. Despite
this, by the end of June 2021 the asset class had returned over 25%
in sterling terms since June 2019, which was long before the
pandemic had entered anyone's consciousness. Given how damaging an
episode it has been for economies, that seems a remarkable outcome,
and one which bears some explanation.
To understand how such an outcome can come about we need to
think about two factors which can vary significantly from the
general macroeconomic backdrop: first, how corporate profits have
evolved, and second, the valuations the market is applying to those
corporate results. Both of these elements have played a part in
driving the asset class, and indeed the trust's net asset value, to
an all-time high during the last year.
Corporate profits
One of the main reasons why the benchmark index is higher by a
quarter since before the pandemic is that companies which benefited
from the pandemic are much more important components of the
opportunity set than those which were adversely affected. The last
year has seen a wide range of business outcomes experienced by
companies around the world. In industries like travel, hospitality
and restaurants, demand was severely reduced by lockdowns and
restrictions in many countries. Companies in these sectors have
been in survival mode, simply focusing on making it through until
something more like normal life resumes. Fortunately, the trust has
had very little by way of investments in the areas most directly
affected by the pandemic, and the two stocks that it does own (the
restaurant business YUM China and the hotel company Huazhu) were
both in China, where the effects of the pandemic were briefer, and
something approaching normality was regained much more quickly than
elsewhere. Other industries felt secondary consequences of the
slowdown caused by the pandemic - banks' profits were reduced as
they raised provisions, for example, and commodity companies saw
less demand for their products as activity slumped, resulting in
declines in commodity prices. Towards the end of 2020, though,
there were already signs of recovery in demand visible in the
results that companies were announcing even in these areas.
On a more positive note, some sectors were clear beneficiaries
of the changes that the pandemic brought to all our lives. The rise
of internet-based companies accelerated, and digital business
models in general prospered as never before. E-commerce businesses
gained market share rapidly; the trust holds shares in five
e-commerce companies operating respectively in Latin America,
Poland, China (two) and South East Asia; simple revenue growth for
these five companies in 2020 averaged 58%, with the slowest-growing
company among our holdings still expanding its sales by almost 30%.
Those are exceptional outcomes, which not surprisingly led to
strong gains in share prices for all but one of these companies,
and made a notable contribution to the trust's aggregate
results.
So overall, the consequences of the pandemic in terms of
corporate profits have been much less adverse, both for emerging
markets as a whole, and for your portfolio, than might be assumed
if one simply looks at macroeconomic data.
Valuations
The valuations applied to companies have also diverged during
the year. With financial stimulus at unprecedented levels, interest
rates have been as low as ever for most of the last twelve months.
This produces a double effect: first, it lowers the overall
discount rate that markets apply to all future corporate profit
streams, thus raising their value in the present; second, it has
the effect of raising the value of each additional point of growth
in profits, producing therefore a pronounced skew in valuations on
top of the diverging profits. Put simply, the fastest-growing
companies have also seen their valuations rise, while the sectors
where profits are struggling to grow have seen valuations compress
even as their profits have suffered. Valuations now probably offer
something of a headwind for overall equity returns, as discussed
further below.
The portfolio
During the last year we made few changes to the portfolio;
investment turnover was below 10%, and the majority of holdings
remained unchanged. This low rate of turnover is both consistent
with previous years, and deliberate. It also means, of course, that
many of the existing structural biases in your company's portfolio
remain in place: we retain significant exposure to IT services,
e-commerce, technology hardware, financials, particularly banks and
insurance, and finally to a range of consumer companies across
emerging markets. During the year we also added several investments
in healthcare, especially in China.
China
Building the conviction to make investments in China has not
been easy, and although policy changes there may not make headlines
in London, recent developments have been significant enough to
merit a separate comment. Since last year, we have seen a number of
regulatory policy changes that have depressed share prices in high
profile sectors in China, from online gaming to e-commerce to
education and delivery services. How can we make sense of what has
been happening? In the first place, we must remember that the
corporate sector in China is still relatively immature compared not
just to the West, but to other emerging markets too: it is only a
few decades since private enterprise was officially sanctioned.
Alongside that, inevitably, the regulatory infrastructure is also
relatively immature. And of course, China's political system leans
instinctively towards intervention and control, especially in areas
which are deemed to have broader consequences for society; nor are
policies shaped through transparency and political debate to the
extent that they might be elsewhere. That just leads to uncertainty
for investors, and uncertainty needs to be priced into equity
markets.
Even so, we can establish some framework for thinking about
risks in a more interventionist environment in China. First, much
of the recent regulation is concerned with issues which would be
familiar anywhere: anti-competitive behaviour, anti-monopoly
regulation, consumer protection, data privacy, cybersecurity: these
are all right at the centre of regulatory efforts in the West too,
and that is neither unexpected nor controversial. In other areas,
however, regulation reaches right into the realm of social policy
and addresses issues which elsewhere would be handled by
politicians rather than regulators. Second, it is clear that some
sectors have heightened political sensitivity in China: strategic
industries like finance, energy, healthcare, communications, media
and internet services, are likely to be subject to greater scrutiny
than industrial manufacturing, exports, consumer products, and so
on. And third, the way companies behave also has a bearing on their
vulnerability: those that aggressively maximise profits while
sailing close to the wind where regulation is concerned are more
vulnerable that those which seek to manage their own risks
prudently to extend the duration of their business.
None of this is new: China has always been a place where the
state exercises significant influence over commercial activity: in
some industries, all the large companies are state-owned entities;
in all sectors, the state is reluctant to let market forces alone
determine outcomes. If this reduces the returns to corporate skill,
which it probably does, then that will affect our view of fair
values for companies; and if inconsistent policy-making raises
uncertainty for investors, then that too must be taken into account
when thinking about share prices. It is not coincidental that your
company's aggregate exposure to China has always been lower than
its weight in the index; the difficulty we found in pricing these
risks has always acted as something of a deterrent, and more so at
times when the rest of the market seemed ready to overlook
them.
But it would be a mistake to be too negative, especially at a
time when some share prices have declined significantly. In spite
of the risks set out above, investors in successful Chinese
companies have been handsomely rewarded over the last twenty years.
China remains a country with high levels of entrepreneurial
activity, and the government knows that it is the private sector
which has created employment, innovation and unprecedented economic
advancement in recent decades. That is very
unlikely to change, and so China will remain a market that is
important for us as investors, and for the results we can achieve
for shareholders.
The year and the portfolio
The past year
PERFORMANCE ATTRIBUTION
YEARED 30TH JUNE 2021
% %
================================ ========== ====
Contributions to total returns
================================ ========== ====
Benchmark return 26.0
================================ ========== ====
Asset allocation * 1.1
================================ ========== ====
Stock selection 10.2
================================ ========== ====
Currency effect * 1.3
================================ ========== ====
Net cash * 0.3
================================ ========== ====
Investment Manager contribution 7.5
================================ ========== ====
Portfolio return 33.5
================================ ========== ====
Management fee and expenses * 0.9
================================ ========== ====
Share buybacks 0.1
================================ ========== ====
Return on net assets(A) 32.7
================================ ========== ====
Return to shareholders(A) 36.2
================================ ========== ====
Source: JPMAM/Morningstar.
All figures are on a total return basis.
Performance attribution analyses how the Company achieved its
recorded performance relative to its benchmark.
(A) Alternative Performance Measure ('APM').
A glossary of terms and APMs is provided on pages 89 and 90.
What next?
A recovering world?
It is too early to know what the lasting consequences of the
pandemic will be. One reads much about the opportunity that we now
have to redraw societal norms, and about the "roaring twenties" as
a period of innovation and excess spurred in part by the last great
global pandemic. Thus far, the experience of the last eighteen
months seems likely to exacerbate and extend inequalities in
societies around the world, which cannot be good news; yet as
recent policy shifts in China show, addressing inequality brings
plenty of challenges too. More narrowly, this has also been a time
of financial experimentation as governments have created
unprecedented amounts of liquidity to support economies that were
in part simply closed down in an attempt to prevent the spread of
infection. How that cost, and the debts incurred, will be repaid in
the long run remains far from clear. For those countries within our
investment universe which already had structural economic
vulnerabilities, the pandemic is likely to leave them in a more
challenging position still. That in itself need not be an
impediment to finding good investments, but it does leave us
looking more at export-related companies, and at those with a
really significant opportunity to take market share. Nevertheless,
the trust has invested through a wide range of conditions over the
last three decades,
and in the corporate sector there will always be winners to
choose and losers to avoid, whatever the economic weather.
Winners and losers
Fortunately, then, this is also a period of high innovation and
change in the business world, not just in the West, but everywhere.
The spread of smartphones and the revolution in data they bring for
companies is producing an age of unusual disruption and creating
some huge winners as well as some significant losers. In some
places, corporate value seems to be being created faster than ever
before, while those businesses on the wrong side of these trends
can seem mired in an intractable and possibly terminal decline.
New industries
On the side of the winners lie many companies whose businesses
are based on digital technology, but even in more traditional
sectors, we are seeing rapid change. Although we have no
investments yet to show for it, we have spent considerable time in
the last year reviewing companies related to electric vehicles and
the associated supply chain, as well as those whose products serve
the renewable energy industry. It is quite possible that
oligopolistic parts of the supply chain will prove a better place
to invest than the final assemblers, just as it has in most of the
computer industry, and we look forward to opportunities in these
areas.
Old favourites
Alongside the excitement of the new, however, we need to have
some confidence in the familiar and established. A few of the
positions the trust owns have now been in the portfolio for two
decades already. If you find a great business, it has always seemed
to us that you should own it for as long as possible, unless the
valuation become so extreme compared to all your other choices that
you have already realised many years of future value in today's
share price. That does not mean a 10 or 15% premium over fair value
- it needs much, much more than that, and the stronger the
business, the more it takes. So there is a direct correlation
between the strength and duration of a company and the length of
time for which we are prepared to hold it. Those rare companies
whose competitive position endures for a very long time, and which
are also able to keep growing, represent the core of the portfolio,
for the simple reason that they still offer some of the best
combinations of risk and reward that we can find anywhere.
Valuations again
Before we get too excited by the changes which are happening in
the business world, we should not forget that the market knows
everything we know already, and is probably reflecting it in share
prices. Our primary concern today is not the outlook for profits
among the companies held in the portfolio (we feel reasonably
confident on that front), it is how much to pay for them.
Valuations are higher than before, both for the portfolio and for
markets as a whole. This is partly because interest rates are very
low; yet the reason interest rates are low is because economies
needed support and growth has, until very recently, looked
uncertain. That combination - rising valuations alongside economic
concerns - risks becoming contradictory eventually, and even if
markets grow into their valuations gradually, it still suggests
that overall returns may be partially restrained by compression in
valuations.
Closing thoughts
Regardless of the ups and downs of markets, regardless of the
pandemic even, there is always opportunity somewhere. We count
ourselves lucky to work in some of the most dynamic and interesting
countries in the world, and privileged to act as stewards of your
capital. It's always important in investment to keep a clear view
of one's decision hierarchy, and recognise what matters the most.
For us, that is always going to be the selection of businesses with
the potential to create and grow intrinsic value for a long time.
If we can record enough successes on that front, most of the rest
will take care of itself.
Austin Forey
John Citron
Investment Managers
29th September 2021
PRINCIPAL RISKS AND EMERGING RISKS
The Directors confirm that they have carried out a robust
assessment of the principal risks facing the Company, including
those that would threaten its business model, future performance,
solvency or liquidity. The risks identified, including emerging
risks, and the ways in which they are managed or mitigated are
summarised below. The ongoing impact of the COVID-19 pandemic is
inherent in all of these risks and is discussed by the Board on a
regular basis.
With the assistance of the Manager, the Board has drawn up a
risk matrix, which identifies the key risks to the Company, as well
as emerging risks. In assessing the key risks and emerging risks
and how they can be mitigated, the Board has given particular
attention to those issues that threaten the viability of the
Company. These key risks fall broadly under the following
categories:
-- Investment Underperformance
An inappropriate investment strategy, for example poor stock
selection, the level of gearing or the degree of portfolio risk,
could lead to underperformance against the Company's benchmark
index and peer companies, resulting in the Company's shares trading
on a wider discount. The Board manages these risks by
diversification of investments and through a set of investment
restrictions and guidelines which are monitored and reported on by
the Manager. The Manager provides the Directors with timely and
accurate management information, including performance data and
attribution analyses, revenue estimates, liquidity reports and
shareholder analyses. The Board monitors the implementation and
results of the investment process with the Manager, whose
representatives attend all Board meetings, and reviews data which
show statistical measures of the Company's risk profile.
-- Loss of Investment Team or Investment Manager
A sudden departure of an investment manager or several members
of the investment management team could result in a short-term
deterioration in investment performance. The Manager takes steps to
reduce the likelihood of such an event by ensuring appropriate
succession planning and the adoption of a team based approach, as
well as special efforts to retain key personnel.
-- Political and Economic
Historically, emerging market companies (and investments in
their shares) have shown greater volatility and may be subject to
certain political and corporate governance risks which are not
typically associated with more developed markets and economies.
Sustained underperformance of emerging markets as an asset class
may occur as a result of risks such as the imposition of
restrictions on the free movement of capital or other government
regulatory changes. These risks are discussed by the Board on a
regular basis.
-- Strategy/Business Management
An inappropriate corporate initiative, for example a takeover of
another company or an issue of new capital; misuse of the
investment trust structure, for example inappropriate gearing; or
if the Company's business strategy is no longer appropriate, may
lead to a lack of investor demand. The Board discusses these risks
regularly and takes advice from the Manager and its professional
advisers.
-- Operational and Counterparty Failure
Disruption to, or failure of, the Manager's or a counterparty's
accounting, dealing or payments systems or the Depositary or
Custodian's records may prevent accurate reporting and monitoring
of the Company's financial position. This includes the failure of
the Manager's continuity plans in the face of systems outage,
office disruption or a pandemic and the risk of cyber crime and the
consequent potential threat to security and business continuity.
Under the terms of its agreement, the Depositary has strict
liability for the loss or misappropriation of assets held in
custody. See note 21(c) for further details on the responsibilities
of the Depositary. Details of how the Board monitors the services
provided by JPMF and its associates and the key elements designed
to provide effective risk management and internal controls are
included within the Risk Management and Internal Controls section
of the Corporate Governance Statement on page 41 of the Annual
Report.
-- Cyber Crime
The threat of cyber attack, in all its guises, is regarded as at
least as important as more traditional physical threats to business
continuity and security. The Board has received the cyber security
policies for its key third party service providers and JPMF has
assured Directors that the Company benefits directly or indirectly
from all elements of J.P.Morgan's Cyber Security programme. The
information technology controls around the physical security of
J.P.Morgan's data centres, security of its networks and security of
its trading applications are tested by an independent third party
and reported every six months against the AAF Standard.
-- Share Price Discount
A disproportionate widening of the share price discount relative
to the Company's peers could result in loss of value for
shareholders. The Board regularly discusses discount policy and has
set parameters for the Manager and the Company's broker to
follow.
-- Change of Corporate Control of the Manager
The Board holds regular meetings with senior representatives of
JPMF in order to obtain assurance that the Manager continues to
demonstrate a high degree of commitment to its investment trusts
business through the provision of significant resources.
-- Legal and Regulatory
In order to qualify as an investment trust, the Company must
comply with Section 1158. Details of the Company's approval are
given under 'Structure and Objective of the Company' on page 27 of
the Annual Report. Should the Company breach Section 1158, it might
lose investment trust status and, as a consequence, gains within
the Company's portfolio would be subject to Capital Gains Tax. The
Section 1158 qualification criteria are continually monitored by
the Manager and the results reported to the Board each month. The
Company must also comply with the provisions of the Companies Act
2006 and, since its shares are listed on the London Stock Exchange,
the UKLA Listing Rules and Disclosure Guidance and Transparency
Rules ('DTRs'). A breach of the Companies Act could result in the
Company and/or the Directors being fined or the subject of criminal
proceedings. Breach of the UKLA Listing Rules or DTRs could result
in the Company's shares being suspended from listing which in turn
would breach Section 1158. The
Board relies on the services of its Company Secretary and its
professional advisers to ensure compliance with the Companies Act
and the UKLA Listing Rules and DTRs.
-- Corporate Governance and Shareholder Relations
Details of the Company's compliance with Corporate Governance
best practice, including information on relations with
shareholders, are set out in the Corporate Governance Statement on
pages 39 to 43 of the Annual Report .
-- Financial
The financial risks faced by the Company include market price
risk, interest rate risk and credit risk. Further details are
disclosed in note 21 on pages 73 to 78 of the Annual Report.
TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
Details of the management contract are set out in the Directors'
Report on page 36 of the Annual Report. The management fee payable
to the Manager for the year was GBP12,660,000 (2020: GBP10,770,000)
of which GBPnil (2020: GBPnil) was outstanding at the year end.
During the year GBPnil (2020: GBP64,000), including VAT, was
payable to the Manager for the administration of savings scheme
products, of which GBPnil (2020: GBPnil) was outstanding at the
year end.
Safe custody fees amounting to GBP495,000 (2020: GBP490,000)
were payable during the year to JPMorgan Chase N.A. of which
GBP301,000 (2020: GBP100,000) was outstanding at the year end.
The Manager may carry out some of its dealing transactions
through group subsidiaries. These transactions are carried out at
arm's length. The commission payable to JPMorgan Securities Limited
for the year was GBP1,000 (2020: GBP9,000) of which GBPnil (2020:
GBPnil) was outstanding at the year end.
The Company also holds cash in the JPMorgan US Dollar Liquidity
Fund, which is managed by JPMF. At the year end this was valued at
GBP0.3 million (2020: GBP12.8 million). Interest amounting to
GBP23,000 (2020: GBP134,000) was received during the year of which
GBPnil (2020: GBPnil) was outstanding at the year end.
Handling charges on dealing transactions amounting to GBP39,000
(2020: GBP34,000) were payable to JPMorgan Chase N.A. during the
year of which GBP16,000 (2020: GBP16,000) was outstanding at the
year end.
At the year end, total cash of GBP232,000 (2020: GBP747,000) was
held with JPMorgan Chase. A net amount of interest of GBP92,000
(2020: GBP2,000) was receivable by the Company during the year from
JPMorgan Chase of which GBPnil (2020: GBPnil) was outstanding at
the year end.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards, comprising FRS 102 'The Financial Reporting
Standard applicable in the UK and Republic of Ireland' and
applicable law). Under company law the Directors must not approve
the financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Company and of
the profit or loss of the Company for that period. In preparing the
financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- state whether applicable United Kingdom Accounting Standards,
comprising FRS 102, have been followed, subject to any material
departures disclosed and explained in the financial statements;
-- make judgements and accounting estimates that are reasonable and prudent; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
and the Directors confirm that they have done so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements and the Directors' Remuneration Report
comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The accounts are published on the www.jpmemergingmarkets.co.uk
website, which is maintained by the Company's Manager. The
maintenance and integrity of the website maintained by the Manager
is, so far as it relates to the Company, the responsibility of the
Manager. The Directors are responsible for the maintenance and
integrity of the corporate and financial information on the
company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Under applicable law and regulations the Directors are also
responsible for preparing a Strategic Report, a Directors' Report
and Directors' Remuneration Report that comply with the law and
those regulations.
Each of the Directors, whose names and functions are listed in
Directors' Report confirm that, to the best of their knowledge:
-- the Company's financial statements, which have been prepared
in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 102
'The Financial Reporting Standard applicable in the UK and Republic
of Ireland', and applicable law), give a true and fair view of the
assets, liabilities, financial position and profit of the Company;
and
-- the Directors' Report includes a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties that it faces.
The Directors consider that the annual report and accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Company's
performance, business model and strategy.
For and on behalf of the Board
Sarah Arkle
Chairman
29 th September 2021
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 30TH JUNE 2021
2021 2020
Notes Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=========================== ===== ======== ======== ========= ======== ======== =========
Gains on investments
held at fair value
through profit or loss - 420,640 420,640 - 23,660 23,660
Net foreign currency
(losses)/gains - (2,201) (2,201) - 292 292
Income from investments 4 19,508 - 19,508 20,247 - 20,247
Interest receivable 4 115 - 115 136 - 136
=========================== ===== ======== ======== ========= ======== ======== =========
Gross return 19,623 418,439 438,062 20,383 23,952 44,335
Management fee (3,798) (8,862) (12,660) (3,231) (7,539) (10,770)
Other administrative
expenses (1,420) - (1,420) (1,324) - (1,324)
=========================== ===== ======== ======== ========= ======== ======== =========
Net return before taxation 14,405 409,577 423,982 15,828 16,413 32,241
Taxation (2,268) - (2,268) (1,651) - (1,651)
=========================== ===== ======== ======== ========= ======== ======== =========
Net return after taxation 12,137 409,577 421,714 14,177 16,413 30,590
=========================== ===== ======== ======== ========= ======== ======== =========
Return per share(1) 2 1.02p 34.38p 35.40p 1.17p 1.36p 2.53p
(1) Comparative figures at 30th June 2020 have been restated
following the sub-division of each existing ordinary share of 25p
into ten ordinary shares of 2.5p each on 6th November 2020.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 30TH JUNE 2021
Called Share Capital Other Capital Revenue Total
up premium redemption reserves reserves reserve(1) GBP'000
share GBP'000 reserve GBP'000 GBP'000 GBP'000
capital GBP'000
GBP'000
====================== ======== ======== =========== ========= ========== =========== ==========
At 30th June 2019 33,091 173,657 1,665 69,939 1,009,708 25,709 1,313,769
Repurchase of shares
into Treasury - - - - (23,293) - (23,293)
Net return - - - - 16,413 14,177 30,590
Dividends paid in the
year (note 3) - - - - - (17,151) (17,151)
====================== ======== ======== =========== ========= ========== =========== ==========
At 30th June 2020 33,091 173,657 1,665 69,939 1,002,828 22,735 1,303,915
====================== ======== ======== =========== ========= ========== =========== ==========
Repurchase of shares
into Treasury - - - - (10,662) - (10,662)
Share split charges - (26) - - - - (26)
Net return - - - - 409,577 12,137 421,714
Dividend paid in the
year (note 3) - - - - - (16,898) (16,898)
====================== ======== ======== =========== ========= ========== =========== ==========
At 30th June 2021 33,091 173,631 1,665 69,939 1,401,743 17,974 1,698,043
====================== ======== ======== =========== ========= ========== =========== ==========
(1) This reserve forms the distributable reserve of the Company
and is used to fund distributions to investors.
STATEMENT OF FINANCIAL POSITION
AT 30TH JUNE 2021
Notes 2021 2020
GBP'000 GBP'000
---------------------------------------- ---------- ----------
Fixed assets
Investments held at fair value through
profit or loss 1,685,041 1,288,907
--------------------------------------- ---------- ----------
Current assets
Debtors 13,869 1,703
Cash and cash equivalents 510 13,534
--------------------------------------- ---------- ----------
14,379 15,237
Current liabilities
Creditors: amounts falling due within
one year (1,376) (229)
Derivative financial liabilities (1) -
--------------------------------------- ---------- ----------
Net current assets 13,002 15,008
--------------------------------------- ---------- ----------
Total assets less current liabilities 1,698,043 1,303,915
--------------------------------------- ---------- ----------
Net assets 1,698,043 1,303,915
--------------------------------------- ---------- ----------
Capital and reserves
Called up share capital 33,091 33,091
Share premium 173,631 173,657
Capital redemption reserve 1,665 1,665
Other reserve 69,939 69,939
Capital reserves 1,401,743 1,002,828
Revenue reserve 17,974 22,735
--------------------------------------- ---------- ----------
Total shareholders' funds 1,698,043 1,303,915
--------------------------------------- ---------- ----------
Net asset value per share(1) 4 143.0p 108.9p
(1) Comparative figures at 30th June 2020 have been restated
following the sub-division of each existing ordinary share of 25p
into ten ordinary shares of 2.5p each on 6th November 2020.
STATEMENT OF CASH FLOWS
FOR THE YEARED 30TH JUNE 2021
2021 2020
GBP'000 GBP'000
-------------------------------------------- ---------- ----------
Net cash outflow from operations
before dividends and interest(1) (15,601) (12,390)
Dividends received 16,618 19,859
Interest received 115 138
Overseas tax recovered 56 91
-------------------------------------------- ---------- ----------
Net cash inflow from operating activities 1,188 7,698
-------------------------------------------- ---------- ----------
Purchases of investments (132,793) (133,905)
Sales of investments 145,707 173,768
Settlement of forward currency contracts (197) 257
-------------------------------------------- ---------- ----------
Net cash inflow from investing activities 12,717 40,120
-------------------------------------------- ---------- ----------
Repurchase of shares into Treasury (9,720) (23,293)
Dividend paid (16,898) (17,151)
Costs in relation to share split (26) -
------------------------------------------- ---------- ----------
Net cash outflow from financing activities (26,644) (40,444)
-------------------------------------------- ---------- ----------
(Decrease)/increase in cash and cash
equivalents (12,739) 7,374
-------------------------------------------- ---------- ----------
Cash and cash equivalents at start
of year 13,534 5,947
Unrealised (loss)/gain on foreign
currency cash and cash equivalents(1) (285) 213
Cash and cash equivalents at end
of year 510 13,534
-------------------------------------------- ---------- ----------
(Decrease)/increase in cash and cash
equivalents (12,739) 7,374
-------------------------------------------- ---------- ----------
Cash and cash equivalents consist
of:
Cash and short term deposits 232 747
Cash held in JPMorgan US Dollar Liquidity
Fund 278 12,787
-------------------------------------------- ---------- ----------
Total 510 13,534
-------------------------------------------- ---------- ----------
(1) The unrealised exchange gain on the JPMorgan US Dollar
Liquidity Fund in the comparative column has been moved from
the
initial "Net cash outflow from operations" total to be disclosed
separately as the "unrealised gain on foreign currency cash and
cash equivalents".
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 30TH JUNE 2021
1. Accounting policies
Basis of accounting
The financial statements are prepared under the historical cost
convention, modified to include fixed asset investments at fair
value, and in accordance with the Companies Act 2006, United
Kingdom Generally Accepted Accounting Practice ('UK GAAP'),
including FRS 102 'The Financial Reporting Standard applicable in
the UK and Republic of Ireland' and with the Statement of
Recommended Practice 'Financial Statements of Investment Trust
Companies and Venture Capital Trusts' (the 'SORP') issued by the
Association of Investment Companies in October 2020.
All of the Company's operations are of a continuing nature.
The Directors believe that having considered the Company's
investment objective (see page 27 of the Annual Report ), risk
management policies (see pages 73 to 78 of the Annual Report ),
capital management policies and procedures (see page 79 of the
Annual Report ), the nature of the portfolio and expenditure
projections, the Company has adequate resources, an appropriate
financial structure and suitable management arrangements in place
to continue in operational existence for the foreseeable future.
For these reasons, they consider that there is reasonable evidence
to continue to adopt the going concern basis in preparing the
financial statements. They have not identified any material
uncertainties to the Company's ability to continue to do so over a
period of at least twelve months from the date of these financial
statements.
The policies applied in these financial statements are
consistent with those applied in the preceding year.
2. Return per share
2021 2020
GBP'000 GBP'000
-------------------------------------------------- -------------- --------------
Revenue return 12,137 14,177
Capital return 409,577 16,413
-------------------------------------------------- -------------- --------------
Total return 421,714 30,590
-------------------------------------------------- -------------- --------------
Weighted average number of shares in issue during
the year(1) 1,191,294,140 1,207,942,160
Revenue return per share(1) 1.02p 1.17p
Capital return per share(1) 34.38p 1.36p
-------------------------------------------------- -------------- --------------
Total return per share(1) 35.40p 2.53p
-------------------------------------------------- -------------- --------------
(1) Comparative figures at 30th June 2020 have been restated
following the sub-division of each existing ordinary share of 25p
into ten ordinary shares of 2.5p each on 6th November 2020.
3. Dividends
Dividends paid and proposed
2021 2020
GBP'000 GBP'000
--------------------------------------------------- -------- --------
Dividends paid
2020 final dividend of 0.9p(1) (2019: 0.9p(1)
) per share 10,710 10,895
2021 interim dividend of 0.52p(1) (2020: 0.52p)(1)
per share 6,188 6,256
--------------------------------------------------- -------- --------
Total dividends paid in the year 16,898 17,151
--------------------------------------------------- -------- --------
Dividend proposed
2021 final dividend proposed of 0.83p (2020:
0.9p)(1) per share 9,858 10,773
--------------------------------------------------- -------- --------
All dividends paid and proposed in the year have been funded
from the revenue reserve.
The dividend proposed in respect of the year ended 30th June
2021 is subject to shareholder approval at the forthcoming Annual
General Meeting. In accordance with the accounting policy of the
Company, this dividend will be reflected in the financial
statements for the year ending 30th June 2022.
2021 2020
GBP'000 GBP'000
------------------------------------------------ -------- --------
2021 interim dividend of 0.52p (2020: 0.52p)(1)
per share 6,188 6,256
2021 final dividend proposed of 0.83p (2020:
0.9p)(1) per share 9,858 10,773
------------------------------------------------ -------- --------
16,046 17,029
------------------------------------------------ -------- --------
(1) The dividend rate has been restated following the
sub-division of each existing ordinary share of 25p into 2.5p each
on 6th November 2020.
4. Net asset value per share
2021 2020
----------------------------- -------------- --------------
Net assets (GBP'000) 1,698,043 1,303,915
Number of shares in issue(1) 1,187,666,096 1,197,052,400
----------------------------- -------------- --------------
Net asset value per share(1) 143.0p 108.9p
----------------------------- -------------- --------------
(1) Comparative figures at 30th June 2020 have been restated
following the sub-division of each existing ordinary share of 25p
into ten ordinary shares of 2.5p each on 6th November 2020.
5. Status of results announcement
2020 Financial Information
The figures and financial information for 2020 are extracted
from the Annual Report and Accounts for the year ended 30th June
2020 and do not constitute the statutory accounts for the year. The
Annual Report and Accounts include the Report of the Independent
Auditors which is unqualified and does not contain a statement
under either section 498(2) or section 498(3) of the Companies Act
2006. The Annual Report and Accounts will be delivered to the
Register of Companies in due course.
2021 Financial Information
The Figures and financial information for 2021 are extracted
from the published Annual Report and Accounts for the year ended
30th June 2021 and do not constitute the statutory accounts for
that year. The Annual Report and Accounts has been delivered to the
Registrar of Companies and included the Report of the Independent
Auditors which was unqualified and did not contain a statement
under either section 498(2) or section 498(3) of the Companies Act
2006.
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of, this
announcement.
29th September 2021
For further information:
Nira Mistry,
JPMorgan Funds Limited
020 7742 4000
ENDS
A copy of the 2021 Annual Report will shortly be submitted to
the FCA's National Storage Mechanism and will be available for
inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The 2021 Annual Report will shortly be available on the
Company's website at www.jpmemergingmarkets.co.uk where up-to-date
information on the Company, including daily NAV and share prices,
factsheets and portfolio information can also be found.
JPMORGAN FUNDS LIMITED
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