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Emma Wall: Hello and welcome to the Morningstar Series 'Why Should I Invest with You'. I'm Emma Wall. I'm joined today by Richard Titherington, manager of the JPMorgan Emerging Market Income Fund.
Hello Richard.
Richard Titherington: Hello.
Wall: So you run both a closed and open-ended emerging markets income fund. Now for the uninitiated, they think of emerging markets as growth regions. So how difficult is it to find income-producing stocks in emerging markets?
Titherington: I think people are right to think about emerging markets as growth, but it's also growth in dividends. And clearly, you have to pick your sector, and one of the reasons that we like dividends as a way of investing in emerging markets is because you tend to have better corporate governance.
But some countries and some industries clearly have greater dividend opportunities than others, so places like South Africa; places like Turkey for instance generally have quite high dividend paying cultures; other countries, Korea, India, less so. Some industries are better than others, so some of the consumer-related companies tend to have quite good dividend policies, but banks and some of the more cyclical companies tend not to. So, yes, you've got to be very stock specific.
Wall: Does that lead to sort of less diversified portfolio? You've mentioned that, that certain sectors are better than others. Are you only buying consumers stocks if you buy a fund?
Titherington: No, we wouldn't have launched the funds in the first place if we couldn't get good diversification. There are a couple of sectors that are different from a standard fund, and we would tend to have more in consumer-orientated companies, maybe more in telecom orientated companies than a standard emerging market fund. But, no, it's important that it is a diversified opportunity set.
Wall: Looking at the performance, both of the closed and the open-ended funds are Bronze rated by Morningstar Analysts. The trust is a five-star performance rating and the open-end is a three-star, but both of them had a tricky year this year after a couple of really good year. So what's happened this year?
Titherington: We can sum it up in one word. It's currency. This year has been a year of negative performance by emerging market currencies. And as I mentioned, we do have exposure to some countries; South Africa, Turkey, Brazil; all of which have had currency weakness. Now, normally, you'd expect them to offset themselves. So if Brazil is weak because it's commodity orientated, you'd expect Turkey to do better. But the dominant story of 2015 has really been the strengths of the dollar and that's been the biggest single impact.
Wall: Therefore, do we need to see the dollar weaken in order for these emerging markets to uplift?
Titherington: Well, I think a weakening dollar historically has been very good for emerging markets. I think stability would be enough to see the emerging market asset class turnaround. It's not necessary to have real weakness of the dollar, but a rising dollar is clearly a headwind, not least because it makes it difficult for companies to grow their dividends. They might grow them in local currency terms, but really we're trying to give dollar or sterling effectively returns to our U.K. investors. So the currency is an important factor.
Wall: But, of course, investing in emerging markets is always a longer term view anyway, so one bad day does not necessarily ruin at all as it were.
Titherington: Well, historically it's a cyclical asset class. You've actually done better buying emerging markets after a disappointing year than you've done buying them after a really good year. So, I certainly wouldn't put people off just because it's out of favor right now.
Wall: Richard, thank you very much.
Titherington: My pleasure.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
