Investment trusts can be an appealing option for emerging markets investors. Their closed-end structure can provide a smoother investment journey for less liquid parts of the investment universe. While there are plenty of trusts which home in on specific areas of emerging markets, such as India, Frontiers or Asia, here we profile three trusts taking a global approach to investing.
The Gold-Rated One: JPMorgan Emerging Markets
JPMorgan Emerging Markets (JMG) is the only trust to hold a coveted Gold Morningstar Analyst Rating, and also holds a 5-star rating, indicating its long-term outperformance. The £1.7 billion trust has been around since 1991 and is has been run by seasoned manager Austin Forey since 1994.
Over the past year, the trust has returned an impressive 30%, almost double the 16.3% achieved by its benchmark and slightly ahead of its Morningstar Category, Global Emerging Markets Equity. Over five years it has delivered annualised returns of 17% compared with a category averagd of 6.1%, and it has delivered annualised returns of 9.86% over a 10-year period.
Morningstar analyst Lena Tsymbaluk rates Forey as an “exceptionally experienced” manager who continues to be nimble. She says the trust's strategy means it should perform well in a strong market environment as well as holding up better than many of its peers in a downturn.
The trust tends to have a bias towards domestically focused stocks, so there a number of financials and consumer staples names in the portfolio. Top holdings include popular tech stocks such as chip-marker Taiwan Semiconductor (2330) and internet giant Tencent (00700) as well as Brazilian e-commerce firm MercadoLibre (MELI) and Chinese insurance group Ping An (02318). Tsymbaluk adds: “The focus on quality companies has been a positive, especially within communication services and technology, while an underweight exposure to energy has also helped performance.”
The Oldest One: Templeton Emerging Markets
Founded in June 1989, Templeton Emerging Markets (TEMIT) is the oldest emerging markets focused investment trust available to investors, according to our data. It is also has the largest market capitalisation among trusts in this space, at £2.5 billion. But the trust only has a Morningstar Analyst Rating of Neutral, as analyst Andrew Daniels says it has “a few strengths, but comes with uncertainties”. Daniels believes manager Chetan Sehgal, who took the helm in 2017, is a “savvy investor” who demonstrates an “intimate knowledge of portfolio holdings” but co-manager Andrew Ness, who joined in 2018, “has more to prove”.
Daniels has concerns that the two managers have not worked together previously and are based in different locations, residing in Edinburgh and Singapore respectively. Still, strong long-term performance earns the trust a 4-star rating and it has delivered annualised returns of 14.8% in the three years that Sehgal has been lead manager, considerably ahead of the category average of 3.68%. Asia dominates the portfolio, with 30% of assets in China, 22% in Korea and 16% in Taiwan. Top holdings include Samsung Electronics (SMSN), Alibaba (BABA) and Russia’s Sberbank (SBER)
Morningstar’s Daniels adds: “The manager duo follow a bottom-up approach, seeking stocks that appear cheap relative to their five-year projected earnings growth. While the approach is reasonable, it is straightforward and doesn’t offer a discernable edge in a competitive peer group.”
The Most Diversified One: Genesis Emerging Markets
With 93 holdings in its portfolio according to latest Morningstar data, the Genesis Emerging Markets (GSS) investment trust has the most diversified portfolio of its peer group. At the other end of the spectrum is the Mobius Investment Trust (MMIT) which has the most concentrated portfolio in our analysis, with just 28 holdings.
The £1.1 billion Genesis trust does not have a Morningstar Analyst Rating, but its 4-star rating indicates its strong long-term performance. It has delivered annualised returns of 11.47% over five years, compared with a category average of 6.42%, and is up 24.9% over the past year.
Taking a team-based approach, there are 11 managers listed as running the trust including Arindam Bhattacharjee, who joined Genesis in 2008, and Catherine Vlasto, who has been with the group since 1995.
A main theme in the trust is the opportunity of the potential growth of low- and middle-income economies due to demographics, economic convergence and inefficient pricing. The portfolio is spread across stocks in China, India, South Korea and Russia, among other countries, with stocks in the consumer and financial services sector accounting for almost 40% of assets. Top holdings include brewing giant Heineken (HEIO), Chinese alcoholic beverage company Wuliangye Yibin (000858), and Country Garden Services (02007), a China-based real estate developer.
