Austin Forey, who has managed JPMorgan Emerging Markets (JMG) since 1994, takes an ultra-long-term approach to stock-picking, aiming to identify long-term structural winners and then be patient, ignoring macroeconomic noise and letting the extra growth potential in quality stocks come through.
He draws on the research of one of the largest emerging-markets research teams, who conduct standardised research across the emerging-markets stock markets, allowing cross-border comparisons and aiding the uncovering of the leading stocks in the hugely diverse region. Their process has led them to favour technology- and e-commerce-related names in recent years, as well as financials, and to avoid more asset-intensive and indebted sectors.
The result has been outstanding long-term returns, JMG having been the top performer in the AIC Global Emerging Markets sector over five- and ten-year periods. As we discuss in the Performance section, performance has been good in both rallying and troubled markets. In recent years some of the top-performing stock picks have been companies the trust has owned for one or two decades, illustrating the benefits of taking a long-term approach and avoiding the temptation to sell and book gains.
Austin has seen numerous crises in his career and has responded calmly to this latest one, making no changes to the portfolio except to examine the case for certain high-quality stocks which are now cheaper and might be good additions to the portfolio.
JMG trades on a slight premium to the sector, with the discount currently 9.7%, compared to a sector average of 12%, although discounts have been extremely volatile in the choppy markets following the emergence of the pandemic.
In our view, investors should invest in JMG using the same approach that Austin takes to stocks: as a core quality holding to invest in and forget about for years and years. While the discount may presently be tighter than that of the average trust in its sector, and tighter than its own five-year average, this is more than worth paying for the growth potential in the portfolio.
Furthermore, we think that the changes that the coronavirus is causing to economies are playing into some of the strengths of the portfolio. E-commerce, software and hardware are all likely to receive a relative boost from the crisis as consumers increasingly shop from home and companies and individuals invest in technology to maintain social distancing. Furthermore, as Austin argues, high-quality companies often come out of crises in good shape because they win business from weaker competitors.
We would also argue that it has never been more obvious how valuable having an experienced manager can be. As the coronavirus continues to ravage economies, having a management team who can remember how bleak it seemed at the nadir of past crises, and how companies with certain characteristics behaved during and following these crises, should lead to better results. As Austin tells us, it is so easy to make rash and bad decisions at times like these. In our view, the best investors stick to their long-term plan, and that is how Austin has reacted.
|Long-term approach to stock-picking has led to consistent outperformance||Reticence to gear limits potential in rising markets (as it limits losses in falling markets)|
|Huge research team allows full and detailed coverage||Yield is low, so unlikely to appeal to income-seekers|
|Manager's experience extends to 1994 and includes numerous crises||Strong growth tilt to portfolio could lead to underperformance if value style outperforms|