JPMorgan Asia Growth & Income (JAGI) uses detailed fundamental research done by a team of over 40 investment professionals to identify superior growth companies in the Asia Pacific region. The team aim to take a long-term view, and look through the volatility and unpredictability often found in the economies, markets and politics of Asian countries.
As such, the process depends less on one or a few people making the right calls again and again, but more on a wide, experienced team implementing a sound strategy consistently. The trust has performed extremely well in recent years with minimal levels of gearing. As we discuss in the Performance section, JAGI is the second-best performer of all Asia Pacific trusts (growth or income) over five years, almost entirely down to strong stock selection. It has outperformed a passive investment in its benchmark index in each of the past seven years.
JPMorgan Asia Growth & Income, renamed from JPMorgan Asian in February 2020, pays 1% of NAV each quarter as a dividend – out of capital if necessary. Since implementing this policy in 2017, the discount has generally been in single digits, having been in double digits previously – it is now 1.3%.
The portfolio continues to be managed – as it has always been – for capital growth, despite the new dividend policy. JAGI offers more exposure to ‘growthier’ sectors, such as information technology and consumer discretionary, than the typical income trust. This has helped JAGI to outperform the other AIC Asia Pacific Income trusts on a total-return basis while offering a comparable yield.
JAGI offers a highly attractive combination of growth and income. The focus on capital growth in stock selection means that the trust has exposure to areas of high secular growth such as information technology and consumer discretionary, while the dividend policy means that it could sit well in an income seeker’s portfolio. In particular, as we discuss in the Dividend section, we think the diversification it would bring to the biases of the average UK equity income fund could be valuable to many yield-seeking investors.
We think the strategy is a highly attractive way to invest in Asia. However, it is an inherently volatile continent, as early 2020 reminded us. Following on from the US–China trade war of 2016 and beyond and the Hong Kong protests of 2019, coronavirus is just the latest macroeconomic and political issue to have roiled markets. We can’t see how a fund manager could be expected to generate alpha consistently by correctly charting the course of these events and positioning their portfolio appropriately. The bottom-up, stock-specific approach of JAGI, along with a time horizon long enough to allow most macro and political movements to wash out, seems to be an ideal approach to this volatile region.
Asia Pacific income trusts have tended to trade close to par in recent years. As such, we don’t think the 1.3% discount is overly tight and would expect JAGI to trade close to par over the medium term.
|A dividend yield not dependent on portfolio income||Due to investing for capital growth, might not provide the defensive qualities of a traditional income strategy|
|Tilt to growth areas not commonly focussed on by equity income portfolios||China is over a third of the benchmark, so investors take some single-country risk|
|Strong and consistent track record of outperformance through stock selection||Asia remains a volatile region with serious political and economic risks|