Page 26 - DIY Investor Magazine | Issue 34

SUSTAINABLE GROWTH THROUGH VOLATILE MARKETS
An investment strategy anchored on sustainable growth is key to navigating choppy markets – Austin Forey, Portfolio Manager
Volatile markets can be uncomfortable for investors and portfolio managers alike. As investors for decades in the emerging markets, the portfolio managers of the JPMorgan Emerging Markets Investment Trust plc (JMG) have found that anchoring around a sound strategy is key to navigating choppy markets.
For JMG, that anchor is its focus on sustainable growth over the long term. Regardless of the market environment, the portfolio managers are constantly looking for great businesses – those with strong competitive positions, sustainable business models and robust governance practices.
Sometimes, these sustainable growth characteristics support near-term performance as well as long-term results; other times, cyclical macroeconomic factors may dominate near- term returns. Recently we’ve seen a mix of impacts across the portfolio.
TOP OF MIND: RUSSIA AND ENERGY PRICES
State-owned enterprises (SOEs) present an interesting example. This structure is relatively common across the emerging markets, often in sectors such as energy and banking.
In many cases, these companies serve a variety of interests, other than those of minority shareholders, and may not run as efficiently or profitably as companies in the private sector.
As a result, the Trust tends to have limited exposure to SOEs because the business model often is not aligned with minority investors and governance issues can arise when the state is overly involved in the management.
‘THE PORTFOLIO’S LIMITED EXPOSURE TO RUSSIA BEFORE THE UKRAINE CONFLICT HAS CONTRIBUTED POSITIVELY TO PERFORMANCE IN RECENT MONTHS’
The high number of SOEs in Russia, combined with some additional governance concerns about the involvement of the state in the private sector, has contributed to historically fewer Russian companies in the Trust.
The portfolio’s limited exposure to Russia before the Ukraine conflict has contributed positively to performance in recent months.
Our view on the governance and profitability of SOEs also contributes to our underweight position in the energy sector in the emerging markets, but there is more to it.
Our focus on long-term sustainable growth tends to result in limited exposure to volatile commodity-related companies, where corporate earnings and share prices are often highly influenced by the commodity prices. Furthermore, many energy companies also face risks from the transition to a low- carbon environment.
As a result, the Trust has long-standing underweights in cyclical sectors, such as energy and materials.
DIY Investor Magazine · July 2022 26