Dividend shake-up proposed for adventurous investment trust

Throughout the year (to end of June 2025), JPMorgan Emerging Markets Ord (LSE:JMG) delivered a share price total return of 9.8%, comfortably ahead of the MSCI Emerging Markets Index return of 6.3%, aided by the discount narrowing. The net asset value (NAV) total return, which reflects how its holdings performed, at 4.9% fell short of the benchmark and was disappointing, particularly given the broader emerging market rally.

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Of interest to shareholders is the board’s proposal of a new dividend policy. The new policy aims to pay annual dividends equal to 4% of the company’s NAV at the end of the preceding financial year, distributed in four equal quarterly instalments. The enhanced dividend policy will not alter JMG’s investment mandate or strategy. The board has also proposed renaming the company to JPMorgan Emerging Markets Growth & Income (JGMI).

Austin Forey, who has managed the trust since 1994, heads the global emerging markets fundamental team. Support is provided by an extensive team of approximately 90 dedicated emerging market and Asia-Pacific portfolio managers and analysts.

The numbers in detail (for financial year to 30 June 2025)

NAV (Net Asset Value) Return: +4.9%
Share Price Return: +9.8%
Benchmark Return (MSCI Emerging Markets Index): +6.3%
Dividend: 2.10p(+10.5% on prior year)
Premium/Discount: -8.2%(vs -12% prior year)
Gearing: 0%(vs 2% prior year)

Performance

Underperformance of its underlying investments stemmed from two main factors. First, the portfolio’s above-index exposure to export-oriented businesses such as Globant SA (NYSE:GLOB) and Tata Consultancy Services, which came under pressure from renewed tariff concerns in the second half of the year. Second, the significant underweight to South Korea, which proved the single largest performance drag as the government’s shareholder value optimisation programme and June’s presidential election result sparked a market surge.

The strongest positive contribution to performance came from technology hardware in Taiwan. Other notable contributors included MercadoLibre Inc (NASDAQ:MELI), the Latin American e-commerce platform and Banco Bilbao Vizcaya Argentaria SA (XMAD:BBVA), the Spanish bank with significant emerging markets exposure.

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Longer-term performance remains robust, with JMG delivering returns well ahead of its benchmark and peers over 10 years.

Outlook

Following a period of performance struggles over the past few years, emerging markets have had a notable uptick in performance, supported by easing of US interest rates and a weakening of the US dollar. Should earnings growth continue to deliver, the lower relative valuations versus the US leave room for further upside. The demographic, socioeconomic and technological strengths of emerging economies remain the long-term tailwinds that compel investment outside developed regions.

With its focus on high-quality companies benefiting from structural growth drivers, JMG’s managers remain confident that emerging markets offer compelling long-term opportunities, even if near-term volatility is expected.

Portfolio

The portfolio retains its established biases, a cautious view on China remains due to concerns over the regulatory environment, slower growth, and weak sentiment. The allocation of just below 20% is an underweight position relative to the MSCI Emerging Market benchmark, however the exposure has increased relative to recent years.

Management have taken a more selective approach to investing in Chinese companies in areas where long-term growth prospects remain compelling. The portfolio maintained a significant underweight to South Korea, which hurt relative performance given the market’s strong rally towards the end of JMG’s financial year.

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Over the period, the portfolio saw increased exposure to India and Taiwan, which account for 17.8% and 22.5% of the portfolio’s assets, respectively. This is reflective of confidence in structural domestic growth and continued strength in technology hardware. Allocations to financials and consumer-related sectors also rose, consistent with the managers’ focus on companies benefiting from favourable demographics and rising disposable incomes.

Overall, the portfolio remains tilted towards structural growth sectors such as technology and financials.

There were several new additions to the portfolio over the year including Tencent Music Entertainment Group ADR (NYSE:TME) (music streaming), Trip.com Group Ltd ADR (NASDAQ:TCOM) (online travel booking) and PB Fintech (insurance), which are all digital disruptors in their respective industries. Other additions included shipping business SITC International Holdings Co Ltd (SEHK:1308) and Korean bank JB Financial. The key focus on quality remains a driving factor in stock selection.

Discount

The discount ended the period at -8.2%, narrowing from -12% at the end of the prior period. Throughout the year shares were bought back, (8.8% of total shares in issue at the start of the year), boosting share price returns.

Dividend

The dividend for the full year is a proposed 2.1p, a rise of just over 10% versus the prior year.

ii View

JMG delivered mixed results for the year ended 30 June 2025 amid heightened global uncertainty from US trade policies and tariffs, which elevated volatility in emerging markets. The trust’s share price total return outpaced the MSCI Emerging Markets Index benchmark’s, largely due to a narrowing NAV discount. However, some may be disappointed by the NAV total return which lagged the returns of the benchmark in what was a positive year for emerging markets.

The investment process remains unchanged, with the managers continuing to focus on high-quality businesses with durable growth drivers and strong governance. Regional positioning has tilted further towards India and Taiwan, with continued caution towards China and South Korea. From a sector perspective, allocations to financials and consumer companies have increased, while cyclical export-sensitive positions have been trimmed.

The process is one of taking patient and long-term positions, with a keen focus on quality-growth – an approach that can be reasonably expected to leave the trust out of favour for short to medium periods, which is reflected in the underperformance versus the benchmark over three years. Although the past year was positive for emerging markets, quality stocks lagged both value and growth, which has persisted over the past three years, proving a headwind over the mid-term given the trust’s focus on quality.

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Looking ahead, the outlook for emerging markets remains optimistic, with superior GDP growth, youthful demographics, and attractive valuations. JMG should stand to benefit if dollar weakness persists and rate cuts continue, with its allocation to technology stocks and it being overweight to the financial and consumer sectors.

The most newsworthy update from the board was the proposal of a new enhanced dividend policy and, accordingly, the potential renaming of the company to JPMorgan Emerging Markets Growth & Income (JGMI). A distribution equivalent to 4% of NAV per annum represents a material increase in shareholder distributions from the current level of below 2% and would be supported, if required, by the trust’s capital reserves. Investors will have the chance to vote on the relatively significant change at an AGM in November.

Given that this trust features on ii’s Super 60 list of investment ideas, our team is still reviewing the outcome of this change in dividend policy on the overall strategy before updating our view.