Annual Financial Report

RNS Number : 2584B

JPMorgan Emerging Mkts Invest Trust

30 September 2022

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN EMERGING MARKETS INVESTMENT TRUST PLC

(the 'Company')

FINAL RESULTS FOR THE YEAR ENDED 30TH JUNE 2022

Legal Entity Identifier : 5493001VPQDYH1SSSR77

Information disclosed in accordance with the DTR 4.1.3

CHAIRMAN'S STATEMENT

The year under review has been a challenging period for global financial markets due to rising inflation, the Russian invasion of Ukraine, Central Bank interest rate rises and slowing global economies. In emerging markets China's interventionist policies, the developing geopolitical tensions with the US and the economic slowdown resulting from China's 'zero Covid' policy have further dented sentiment.

Against this challenging backdrop, the return to shareholders fell by 20.6% over the period following seven years of consecutive rises, and the Company's net asset value (NAV) underperformed the benchmark for the first time in five years. However, the Investment Manager looks at investment opportunities over a five-year time horizon and the longer-term performance remains strong with the five year cumulative return to shareholders at 41.5% and the NAV total return up 38.1%, well ahead of the benchmark return of 19.1% and our peer group (including OEICs and ETFs) average return of 17.1% over the same period.

Reducing the discount has been one of the Directors' key objectives and it was disappointing that, following several years of making progress on the narrowing of the Company's share price discount to NAV, the discount widened over the year from 6.4% to 10.3%. Apart from continuing the strong performance record and narrowing the discount, the Directors' other two objectives are broadening the shareholder base and ensuring that the increasing focus on ESG and sustainable investing and the integration of these into the manager's investment process are more fully communicated to the Company's shareholders. We have made further progress in broadening the shareholder base with institutional investors now owning 34.6% of the company, down slightly from last year and materially down from 63.5% five years ago. Retail investors and wealth managers have correspondingly increased their shareholding. We have also been committed to the development of the ESG credentials of the Company and communicating them to both existing and prospective shareholders.

Investment Performance

Investment performance in the year to 30th June 2022 was negative in absolute and relative terms. The return to shareholders was -20.6% over the year and the Company's return on net assets was -17.3%. Our benchmark index (the MSCI Emerging Markets index with net dividends reinvested, in sterling terms) returned -15.0%.

Over the year there was a significant rotation in stock markets away from the quality growth and technology related companies that had benefitted the portfolio over the period of low interest rates, and into energy and more cyclical stocks. Stock selection was the main reason for the underperformance against the benchmark over the year. The key detractors from performance against the index over the year were the underweight positions in the energy sector and the Middle East coupled with sharp falls in some of the portfolio's best performing growth companies where the valuations had become stretched, particularly when looked at against an environment of higher interest rates. The Company had less than 1% in Russia before the invasion of Ukraine and this underweight position against the index was a positive.  However, the valuation of Sberbank (the only Russian company held) had to be written down to virtually nothing.

Over the longer term our NAV and share price performance remain strong. They both are well ahead of our benchmark over  three, five and ten years as the graph on page 6 of the Annual Report illustrates, showing the benefits that can be achieved from high conviction active management. This consistent long-term outperformance has also been recognised by the Company winning a number of impressive awards: for the second year running the Company won the Investment Week Best Emerging Markets Trust and for the third consecutive year it was the winner of the prestigious Citywire Global Emerging Market Equities award.

The Investment Manager's Report, below, provides a review of the financial year to 30th June 2022 and more detail on the investment performance.

Discount

The discount (to the cum income net asset value) ended the financial year at 10.3%. This compares with a discount of 6.4% at the end of the previous financial year and 6.2% at the half year ended 31st December 2021. This reflects a general widening of discounts across both emerging market investment trusts and the overall investment trust sector.

Over the last 12 months the discount on the Company's shares ranged between 13.4% and 4.8%, averaging 8.2%, which compares with an average discount of 5.0% for the previous financial year. At the time of writing the Company's shares are trading on a discount of 13.3%.

The Board regularly reviews the merits of buying back shares in order to manage the level and volatility of the discount and would, for example, consider buying back shares if the discount is out of line with the Company's peers, markets are orderly and it is in the best interests of shareholders to do so. As shares are only bought back at a discount to the prevailing net asset value, share buybacks benefit shareholders as they increase the net asset value per share. Over the financial year 17,153,866 shares (representing 1.4 % of share capital) were bought back at an average discount of 8.6% and at a cost of £20.9 million which added 0.1% to performance. A further 7,491,080 shares have been bought back post the year end. This compares with buybacks of 9,261,304 shares last year at an average discount of 9.4%. If the shares were to trade at a premium to NAV for a sustained period of time, the Board may decide to use its authority to re-issue shares out of Treasury, but only if the impact of any share issuance after costs is of benefit to existing shareholders and not dilutive to NAV.

Revenue and Dividends

The Company is managed to produce total return rather than any particular level of dividend which means that that the level of dividends will vary. For individual years dividends received in sterling terms may fluctuate in line with underlying earnings, as well as currency movements and any changes in the portfolio. In the financial year just ended the dividends increased and the weakness in sterling enhanced the revenue compared with the previous year resulting in the revenue return per share increasing markedly for the first time in three years. The revenue return per share for the year rose to 1.36 pence from 1.02 pence in 2021 which is an increase of 33.3%.

One of the advantages of being an investment trust over other types of collective fund is the ability to use the Company's revenue reserves to smooth dividends paid to shareholders from year to year which the Board has utilised in the previous two financial years. Given the lack of certainty over next year's revenue figures, the Board is proposing for this year an unchanged final dividend of 0.83 pence per share, subject to shareholder approval at the forthcoming Annual General Meeting ('AGM'). This means that the dividend will be covered by this year's revenues. Together with the interim dividend of 0.52 pence paid in April, the total dividend for the year will again be 1.35 pence.

Environment, Social and Governance ('ESG') Issues

Your Manager has long held the belief that sustainable companies are more attractive investments, able to deliver superior returns over time. The consideration of ESG factors in the evaluation of companies has long been a critical part of the Manager's investment process. In more recent years, the integration of ESG has become formalised and the application of JPMorgan Asset Management's proprietary analysis adds further rigour to the process. Engagement with companies has always been an important way for the Manager to promote their standards and principles. This ongoing endeavour is ably supported by one of the largest emerging markets investment teams of over 90 analysts around the world, conducting over 4,000 company meetings over the past year. They are further supported by a 32 strong team of sustainable investing specialists. While the Company is not described as a 'sustainable' fund, the profile of the portfolio shows favourable ESG characteristics, including a very low carbon footprint compared against the benchmark. We expect the market and regulators will continue to demand higher ESG standards over time and the Board has confidence that the Manager can continue to meet these and demonstrate high integrity in its approach. Further information and discussion can be found in the ESG Report on pages 17 to 22 of the Annual Report .

Consideration of sustainability has always been an intrinsic part of the Manager's investment approach to assessing risk and reward, directly linking valuation consequences with companies' environmental, social and governance standards. The Company received its inaugural MSCI ESG rating in September 2021 scoring an 'A' and ranked very highly among the Lipper Peer Group.

The Manager

The Board monitors the performance of our Manager through its Management Engagement Committee. It judges performance over the longer term and thus we remain pleased with the Manager's overall performance, not only in terms of investment performance but also in terms of risk management, administration, controls and compliance, where we continue to be very well served by J.P.Morgan.

Following the fee review at the beginning of the financial year the ongoing charge ratio is 0.84%, down from 0.90% last year and 1.07% five years ago. The Directors will continue to monitor the Company's fee to ensure that it remains competitive against the peer group and is attractive for our shareholders against the other emerging market options available to them.

The Directors also reviewed the key third party providers in terms of quality of service provided and fees and found then to be competitive.

Board Succession

I have been a Director of the Company since 2013 and have served as Chairman since 2018.

As announced in March, in accordance with the Board's succession plan, I will be retiring as Chairman of the Board and a Director at this year's AGM. I am delighted that the Board has agreed that Aidan Lisser will succeed me as Chairman of the Board immediately following the AGM. I am confident that his broad experience across wealth management, banking and international consumer products, alongside considerable investment trust board knowledge and expertise, will be of great value to the Company and its shareholders.

In the early part of this year, the Company engaged an independent search consultancy to find a suitably qualified Director to join our Board. After a thorough selection process we announced in July 2022 the appointment of Zoe Clements as non-executive Director to the Board with effect from 1st September 2022. Zoe is an experienced non-executive Director, investor and finance professional and spent six years of her career at PricewaterhouseCoopers LLP where she qualified as a Chartered Accountant.

In compliance with corporate governance best practice, all Directors, except myself, will be standing for re-appointment at the forthcoming AGM.

The FTSE Women Leaders Review continues the important work, and success, of the Hampton-Alexander and Davies Reviews that came before it. The Board remains committed to working towards the voluntary target of 40% female representation on the Board by 2025.

AGM

This year's AGM will be held at JPMorgan's office at 60 Victoria Embankment, London EC4Y 0JP on Wednesday, 9th November 2022 at 3.00 p.m. Austin Forey and John Citron will give a presentation to shareholders, reviewing the past year and giving their view on the outlook for emerging markets for the current year. The meeting will be followed by afternoon tea, which will provide shareholders with the opportunity to meet the Directors and the Investment Managers. We look forward to seeing as many shareholders as possible at the AGM.

Outlook

A global environment of higher inflation and interest rates together with geopolitical concerns will continue to pose challenges for world stockmarkets. However, it is encouraging that inflationary pressures are less extreme in many emerging economies than in a number of Western countries and preemptive interest rate rises have meant that further rises are likely to be more subdued than in the developed world. Economic activity in many of the emerging market economies where your Company invests remains stronger than in the developed world and their debt to GDP levels are less stretched.  Lower debt levels will also make emerging market economies more resilient to the impact of a stronger US dollar than in past cycles. Over the longer term, emerging economies should continue to show superior growth underpinned by several positive structural trends such as generally favourable demographics which support growing working-age populations and rising incomes.

Valuations have now returned to more reasonable levels following the recent falls in stock markets and a period of underperformance for the Manager's investment strategy, which focuses on high-quality companies that can sustain earnings growth over the longer term. Strong franchises and healthy balance sheets should support the earnings of these companies in a period of rising interest rates and slower global growth. Any further stockmarket volatility will create a number of interesting investment opportunities for stock pickers. The performance track record of your Company over three years and beyond remains excellent. Whilst in future there may be further shorter term periods when the Manager's strategy underperforms, the Directors believe that over the longer term the strategy will continue to outperform, as it has done in the past.

Sarah Arkle
Chairman

29 th September 2022 

INVESTMENT MANAGER'S REPORT

Objectives & outcomes

Purpose & Approach

The primary purpose of your Company remains unchanged: it is to achieve good investment returns for you, its shareholders. As the Company's investment managers, we aim to achieve this by taking a long term approach to investment, based on fundamental research, and focused on selecting stocks rather than countries or industries. We continue to look for high quality corporate franchises able to compound intrinsic value through economic cycles, and when we find them we expect to own them for a long time.

We also strive to be a responsible and engaged investor in the companies in which your portfolio is invested. As we have explained in previous years, a long term approach to investment leads naturally to a consideration of sustainability in the widest sense, and we have always sought to incorporate this in our investment process. More details on both our approach and on portfolio characteristics can be found in our ESG Report, which also contains examples of how we analyse and engage with investee companies with regards to sustainability.

Returns for shareholders

Last year we were able to report results that were positive both in absolute terms, and relative to our benchmark index. Regrettably this year we can report neither. The twelve months to June 2022 were a challenging period for equity markets, and for the approach we take to investment: the overall asset class declined by 15% in sterling terms, and your portfolio did worse than this, producing a total return on net asset value of -17.3%. In the commentary below we will address some of the reasons for this, how we responded, and what we think when we look forwards. At a high level, however, we can say that the Company's lack of exposure to purely cyclical sectors, especially energy, proved a meaningful drag on performance. The de-rating of higher quality and faster growing companies' stocks in a period of rising interest rates was a further headwind.

Active management

We are active managers and do not seek to replicate index returns, but to enhance them. Over the last twenty years the additional return before costs added to your Company's portfolio by active management has averaged more than 4% per annum compared to the index, which gives us confidence that our approach, while it will not work in every single year, creates value for shareholders over the long term. As investors, we try to take a long term view of our investments, and we hope that our clients will assess us in the same way.

The year and the portfolio

The past year

PERFORMANCE ATTRIBUTION

Contributions to total returns as at 30th June 2022
Benchmark Total return	-15.0%
Asset allocation	0.1%
Stock selection	-3.5%
Currency effect	1.1%
Gearing/Cash	0.7%
Investment Manager contribution	-1.6%
Portfolio Total Return	-16.6%
Management Fees/Other Expenses	-0.8%
Share Buy-Back/Issuance	0.1%
Return on net assetsA	-17.3%
Return to shareholdersA	-20.6%

Source: JPMAM and Morningstar. All figures are on a total return basis.

Performance attribution analyses how the Company achieved its recorded performance relative to its benchmark index.

^A A glossary of terms and APMs is provided on pages 95 and 96 of the Annual Report .

The past year

In June 2021 the world seemed hopeful. The pandemic was gradually passing and the shadow it cast over economies and lives was gradually fading, especially in the West. The Chinese equity market was grappling with changes in the regulatory policy of the government, but in general it seemed reasonable to expect that companies in most industries in most countries would slowly claw their way back to something resembling pre-pandemic normality. Markets also assumed that monetary policy around the world would remain very accommodating, especially given how much additional debt governments had assumed during the pandemic. What a lesson on the perils on consensus thinking the last year has given. It became clear as the year progressed how much operational capacity in many sectors has been reduced during the last two years, and how unable all kinds of industries were to meet the recovery in demand. In market economies, that dislocation of the supply/demand balance can only mean one thing - higher prices. And higher levels of inflation must eventually mean tighter economic policy, which means higher interest rates, which mean lower valuations for risk assets of all kinds. And all this before we consider the impact of Russia's invasion of the Ukraine, which has sharply exacerbated these trends, and reshaped our addressable investment universe as well.

Geopolitics

This has been a very political year for investors, and geopolitical events and decisions have had a large effect on markets. The clearest example of this is Russia's invasion of the Ukraine, a military intervention which has produced many negative consequences. We could not understand, before it happened, how it could possibly work out positively from any perspective, including Russia's. Yet not for the first time, political actions were taken whose logic and purpose escaped us. International isolation, sanctions, and the acceleration of a strategic shift in European energy policy which ultimately will threaten Russia's only strategic export; that does not seem like a set of choices which will look good when seen through the lens of history. But we are, as they say, where we are, and for the second year in a row, political decisions had a direct cost to your Company's portfolio. Our sole investment in Russia, (Sberbank, representing less than one percent of the Company's net asset value before the invasion), was effectively written off, and Russia is no longer an investable market for us. Although Russia's demise as an investable country didn't actually hurt our relative performance, a near total loss of value for any investment is a failure.

If Russia and the Ukraine came as a sudden shock to markets, political risk in China is something we have worked with for years. I wrote in last year's annual report about China and how we think about risks there. Political risks in China are endemic; far more than in most countries, the government and the economy cannot be separated. Last year this risk found its clearest expression in regulatory interventions in various industries; this year, it has been the government's "zero Covid" policy which has had the biggest effect on the economy and on the corporate sector. Some aspects of this policy, especially the desire to protect the healthcare system, seem familiar from other countries' experience of the pandemic; what is different is the lack of public policy debate, and the consequent difficulty of judging how policy may evolve. The probability that China will change its approach must be high; eventually the economic costs of maintaining it will prove too burdensome, and the need to do so will fade too. But how long that change takes seems hard to judge.

One could say much the same of the other big political issues that involve China - its relations with the USA, and its actions regarding Taiwan. Nobody should expect a return to the previous norms here: for the USA in particular, China is a strategic rival that will be treated as such. Given the economic interdependency that exists, including China's importance for major American companies, this is not a simple thing to do. We should expect tensions to continue, and we need to factor that into our assessment of every stock we own in China. The companies that are probably least affected are those which operate domestically within China, and are listed, regulated and owned in China. It is not a coincidence that our recent new investments in China, in companies in the consumer and software industries, conform to this pattern.

Returns in the portfolio

Our framework for thinking about prospective equity returns remains a simple one: we can summarise it simply as dividends, growth, valuation change and currency change. This framework can also be run retrospectively, and be used for portfolios too. This is not a perfect analysis when applied to the Company: the portfolio changes over time both because of transactions and because of the different returns from stocks held; but looking at the last year through this lens, we can explain much of what we need to understand about the portfolio's performance. Put simply, the sources of return for the portfolio over the last financial year in sterling terms were as follows:

Dividend yield  +1.5%

Earnings growth  +9.4% in sterling terms

Valuations  -28.2%

Total return  -17.3% in sterling terms

So we see that while the companies in the portfolio collectively grew their intrinsic value at a double digit clip (dividends plus growth), the de-rating of their share prices more than offset this.

Valuations

In June 2021 the Company's portfolio stood at a price/earnings ratio of 26.2x forward earnings, and I wrote in last year's annual report that our primary concern was not about the resilience or even profit performance of the companies held in your portfolio, but about the valuations being assigned to them. That concern turned out to be well founded, though not for the reasons we expected. We argued a year ago that it was potentially contradictory to combine low interest rates, imposed because economies seemed fragile, with high valuations which required strong profit growth to be justified. In practice, it was inflation which caused interest rates to start rising, and it has been higher interest rates which have depressed equity valuations, especially for companies with a long expected duration of future growth. Currently, the market is pricing the portfolio at 18.8x forward earnings, a level that is not only more normal when considered against the past, but which seems justifiable for a collection of resilient and strong businesses, especially given that we expect these companies to be able to grow their profits into the long term. Our analysis suggests that the greatest opportunity in markets at present is precisely in these higher quality, long duration businesses which have seen their shares de-rate sharply. If that is correct, the Company will be well positioned for the next few years.

Growth

Underlying earnings from the companies in the portfolio continued to grow, even as their share prices fell. Of course, there is more to it than that. Markets are forward-looking, and are anticipating a cycle in corporate profits; if western economies slide into recession, which appears possible, then companies exposed to global demand will not be immune.

Given that, what is the outlook for growth now? The major exposures in the portfolio are in three sectors: technology, financial services and consumer. Of these three, technology is the most sensitive to global economic conditions. The technology companies held in the portfolio, whether hardware manufacturers like Taiwan Semiconductor or service providers like Infosys and Tata Consultancy, are export businesses whose primary markets are the USA and Europe. They are bound to reflect cycles in demand to some extent in their revenues in the short term, though there is little sign of this in their latest results. All four of the IT services companies in the portfolio reported double digit revenue growth in their results to June 2022, with three of them reporting similar growth in profits (the exception being EPAM Systems, which not surprisingly suffered one-off costs incurred in relocating part of its workforce from the Ukraine). The same applies to the technology manufacturing stocks; Samsung Electronics and Delta Electronics also grew revenues at over 10% in the twelve months to June 2022, while Taiwan Semiconductor had an extraordinary year, with both revenues and net profit over 40% higher than the previous year. In the past these companies have grown partly because global demand for technology rises over time, but mostly because they have been able to grow their share of that growing pie. If both persist in the future, which we expect they will, we should see good returns in the future as well.

The second category, financial services, is a far more localised industry; macroeconomic conditions at the national level are important, and it's more difficult to generalise about prospects. Growth rates for our largest financial holdings have slowed in the last year, but also remain positive. Many of our larger holdings, including Housing Development Finance, Capitec, Chailease, Bank Rakyat and Banorte grew both revenues and earnings at over 10% in the last twelve months while also continuing to strengthen their balance sheets. Looking ahead, we should expect some cycle in credit quality, but our holdings are in companies with very strong capital ratios and a history of prudent risk management, which should stand them in good stead.

Finally, the consumer sector; companies in this sector cater mostly to everyday demand for everyday products, including staples like food and beverages. They are intrinsically less cyclical than many other industries, and tend to be strongly financed because they generate cash continually. Here too, growth has been solid in the last year: Kweichou Moutai, ITC, President Chain Store, Walmart Mexico, United Breweries are further examples of companies still expanding at a double digit rate in places as diverse as China, Mexico, India and Taiwan.

We should add one last comment about the outlook for growth. It's much easier to assess a company's relative strengths than it is to make specific and accurate forecasts about its financial performance in any one period. When times are more challenging, advantage accrues faster to the strongest companies than it does in times when all are prospering. We cannot be certain about the growth that will be achieved as the world goes through an economic cycle, but we can be confident about the competitive position of the companies in the portfolio, and about their ability to come through a cycle in good shape. With the exception of the financial companies, for whom leverage is an inherent part of their business, the companies held in your portfolio have unleveraged balance sheets; which is to say that in aggregate they have a net cash position with no net debt. So in addition to their operational strengths as businesses, they are well-placed to withstand higher interest rates too.

Portfolio changes

We did not make many changes to the portfolio during the year; overall turnover remained low at 10%. But, as in any period, some of the decisions taken proved more important than others. By far the biggest change was a large reduction in two information technology holdings, EPAM and Globant, purely on the grounds of valuation. We continue to hold both these stocks in the portfolio, but at reduced weights: this was one instance in which a decision motivated purely by high valuations proved justifiable. Our largest addition to the portfolio was Samsung Electronics, the leading global producer of DRAM memory chips.

We do not expect the overall shape of the portfolio to change dramatically as we look forwards (high oil prices do not suddenly make oil a great industry to invest in). What we most want to achieve, as ever, is to find the very best companies discounted unreasonably by a market that has been spooked by short term worries.

What next?

Inflation and then what?

It seems that central banks have awoken from a trance and remembered that their primary function is to prevent inflation. That is not going to be a comfortable experience for economies or for capital markets. In the near term, most risk assets face some headwinds, as interest rises affect bonds, equity, real estate and most other assets as well. We are currently carrying a little more cash in the portfolio than usual. But for those with long memories, current conditions will seem more like a throwback to the eighties and nineties: this looks like an inflationary cycle rather than a systemic financial crisis, and even though cycles are never comfortable times to be investing, they do bring opportunities and they do eventually pass. When markets are most negative, the risk/reward is actually at is most attractive.

In emerging markets, central banks have been tackling inflation with sharper rate rises than we have seen in the developed world, and mostly without the same challenges involved in changing energy supplies. Macroeconomic fundamentals actually look much better in some countries than they have in previous periods of monetary tightening, and the long-term economic growth rate achievable by emerging markets should continue to outpace that of the developed world. The scope for productivity gains remains significant, and other macro-economic factors like demographics are also look relatively favourable. But much more important than that will be economic results achieved by companies, especially the returns they make on the capital they invest in their businesses.

Sources of return again

What do our forecasts tell us about the future now? One of the most striking things is that the dollar looks very expensive, having appreciated strongly against many other currencies. For sterling-based investors, this is less of a factor: developed world currencies like sterling, the euro and the Japanese yen have weakened against the dollar just as much as many emerging market currencies. But historically a strong dollar has not been a good thing for emerging equity markets: if that trend of dollar strength fades or reverses, it could lead to a more propitious environment for the Company's asset class.

It's also logical to feel more relaxed about valuations now than a year ago; as we wrote above, the portfolio looks reasonably valued to us for the quality of the businesses it owns.

So a lot will come down to growth rates, and here we should reiterate that we try to think about all the factors which determine any business's ability to generate returns on the capital it invests, and thereby create value over the long term. If we hold a collection of highly competitive, strongly financed companies on reasonable aggregate valuations, which we believe we do, it is not hard to believe that they will in the long run continue to grow their intrinsic value, which will in turn translate into good returns for their shareholders.

Closing thoughts

As Warren Buffett is reputed to have said, investment is simple, but not easy. This past year stands as a good illustration of that maxim. We will keep investing in strong businesses with the ability to compound their intrinsic value, mindful of two other comments attributed to Buffett: "time is the friend of the wonderful business, the enemy of the mediocre", and "the stock market is a device for transferring money from the active to the patient".

Austin Forey
John Citron

29th September 2022

Principal and Emerging Risks

The Directors confirm that they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. With the assistance of JPMF, the Audit Committee has drawn up a risk matrix, which identifies the key risks to the Company. These are reviewed and noted by the Board. The risks identified and the broad categories in which they fall, and the ways in which they are managed or mitigated are summarised below. The AIC Code of Corporate Governance requires the Audit Committee to put in place procedures to identify emerging risks. The key emerging risks identified are also summarised below.

• Investment Underperformance

An inappropriate investment strategy, for example poor stock selection, the level of gearing or the degree of portfolio risk, could lead to underperformance against the Company's benchmark index and peer companies, resulting in the Company's shares trading on a wider discount.

Mitigating Activities

The Board manages these risks by diversification of investments and through a set of investment restrictions and guidelines which are monitored and reported on by the Manager. The Manager provides the Directors with timely and accurate management information, including performance data and attribution analyses, revenue estimates, liquidity reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the Manager, whose representatives attend all Board meetings, and reviews data which show statistical measures of the Company's risk profile.

• Loss of Investment Team or Investment Manager

A sudden departure of an investment manager or several members of the investment management team could result in a short-term deterioration in investment performance.

Mitigating Activities

The Manager takes steps to reduce the likelihood of such an event by ensuring appropriate succession planning and the adoption of a team based approach, as well as special efforts to retain key personnel.

• Political and Economic

Historically, emerging market companies (and investments in their shares) have shown greater volatility and may be subject to certain political, geopolitical and corporate governance risks which are not typically associated with more developed markets and economies. Sustained underperformance of emerging markets as an asset class may occur as a result of risks such as the imposition of restrictions on the free movement of capital or other government regulatory changes.

Mitigating Activities

These risks are discussed by the Board on a regular basis.

• Strategy/Business Management

An inappropriate corporate initiative, for example a takeover of another company or an issue of new capital; misuse of the investment trust structure, for example inappropriate gearing; or if the Company's business strategy is no longer appropriate, may lead to a lack of investor demand.

Mitigating Activities

The Board discusses these risks regularly and takes advice from the Manager and its professional advisers.

• Operational and Counterparty Failure

Disruption to, or failure of, the Manager's or a counterparty's accounting, dealing or payments systems or the Depositary or Custodian's records may prevent accurate reporting and monitoring of the Company's financial position. This includes the failure of the Manager's continuity plans in the face of systems outage, office disruption or a pandemic and the risk of cyber crime and the consequent potential threat to security and business continuity. Under the terms of its agreement, the Depositary has strict liability for the loss or misappropriation of assets held in custody. See note 21(c) for further details on the responsibilities of the Depositary.

Mitigating Activities

Details of how the Board monitors the services provided by JPMF and its associates and the key elements designed to provide effective risk management and internal controls are included within the Risk Management and Internal Controls section of the Corporate Governance Statement on page 48 of the Annual Report.

• Cyber Crime

The threat of cyber attack, in all its guises, is regarded as at least as important as more traditional physical threats to business continuity and security. The Board has received the cyber security policies for its key third party service providers and JPMF has assured Directors that the Company benefits directly or indirectly from all elements of J.P.Morgan's Cyber Security programme.

Mitigating Activities

The information technology controls around the physical security of J.P.Morgan's data centres, security of its networks and security of its trading applications are tested by an independent third party and reported every six months against the AAF Standard.

• Share Price Discount

A disproportionate widening of the share price discount relative to the Company's peers could result in loss of value for shareholders.

The Board regularly discusses discount policy and has set parameters for the Manager and the Company's broker to follow.

• Manager

Change of corporate control of the Manager or similar event that changes focus of the Manager.

Mitigating Activities

The Board holds regular meetings with senior representatives of JPMF in order to obtain assurance that the Manager continues to demonstrate a high degree of commitment to its investment trusts business through the provision of significant resources.

• Legal and Regulatory

In order to qualify as an investment trust, the Company must comply with Section 1158. Details of the Company's approval are given under 'Structure and Objective of the Company' on page 31 of the Annual Report. Should the Company breach Section 1158, it might lose investment trust status and, as a consequence, gains within the Company's portfolio would be subject to Capital Gains Tax.

Mitigating Activities

The Section 1158 qualification criteria are continually monitored by the Manager and the results reported to the Board each month. The Company must also comply with the provisions of the Companies Act 2006 and, since its shares are listed on the London Stock Exchange, the UKLA Listing Rules and Disclosure Guidance and Transparency Rules ('DTRs'). A breach of the Companies Act could result in the Company and/or the Directors being fined or the subject of criminal proceedings. Breach of the UKLA Listing Rules or DTRs could result in the Company's shares being suspended from listing which in turn would breach Section 1158. The Board relies on the services of its Company Secretary and its professional advisers to ensure compliance with the Companies Act and the UKLA Listing Rules and DTRs.

• Corporate Governance and Shareholder Relations

Details of the Company's compliance with Corporate Governance best practice, including information on relations with shareholders, are set out in the Corporate Governance Statement on pages 46 to 48 of the Annual Report.

• Financial

The financial risks faced by the Company include market price risk, interest rate risk and credit risk. Further details are disclosed in note 21 on pages 81 to 87 of the Annual Report.

Emerging Risks

The Board has considered and kept under review emerging risks, including but not limited to the impact of climate change, geopolitical conflict risk, inflationary pressures, natural disasters and social dislocation and conflict. Climate change, which barely registered with investors a decade ago, has today become one of the most critical issues confronting asset managers and their investors. Investors can no longer ignore the impact that the world's changing climate will have on their portfolios, with the impact of climate change on returns now potentially significant. However, the transition to a low-carbon economy across the globe may also provide attractive investment opportunities. The Board receives ESG reports from the Manager on the portfolio and the way ESG considerations are integrated into the investment decision-making, so as to mitigate risk at the level of stock selection and portfolio construction. The Board also considers the threat posed by the direct impact of climate change and extreme weather events on the operations of the Manager and other major service providers.

Transactions with the Manager and related parties

Details of the management contract are set out in the Directors' Report on page 43 of the Annual Report. The management fee payable to the Manager for the year was £11,789,000 (2021: £12,660,000) of which £nil (2021: £nil) was outstanding at the year end.

Safe custody fees amounting to £465,000 (2021: £495,000) were payable during the year to JPMorgan Chase N.A. of which £81,000 (2021: £301,000) was outstanding at the year end.

The Manager may carry out some of its dealing transactions through group subsidiaries. These transactions are carried out at arm's length. The commission payable to JPMorgan Securities Limited for the year was £5,000 (2021: £1,000) of which £nil (2021: £nil) was outstanding at the year end.

The Company also holds cash in the JPMorgan US Dollar Liquidity Fund, which is managed by JPMF. At the year end this was valued at £57.2 million (2021: £0.3 million). Interest amounting to £158,000 (2021: £23,000) was received during the year of which £nil (2021: £nil) was outstanding at the year end.

Handling charges on dealing transactions amounting to £49,000 (2021: £39,000) were payable to JPMorgan Chase N.A. during the year of which £2,000 (2021: £16,000) was outstanding at the year end.

At the year end, total cash of £487,000 (2021: £232,000) was held with JPMorgan Chase. A net amount of interest of £220 (2021: 92,000) was receivable by the Company during the year from JPMorgan Chase of which £nil (2021: £nil) was outstanding at the year end.

Full details of Directors' remuneration and shareholdings can be found on page 54 of the Annual Report.

Statement of Directors' responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• state whether applicable United Kingdom Accounting Standards, comprising FRS 102, have been followed, subject to any material departures disclosed and explained in the financial statements;

• make judgements and accounting estimates that are reasonable and prudent; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

and the Directors confirm that they have done so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The accounts are published on the Company's website www.jpmemergingmarkets.co.uk, which is maintained by the Company's Manager. The maintenance and integrity of the website maintained by the Manager is, so far as it relates to the Company, the responsibility of the Manager. The Directors are responsible for the maintenance and integrity of the corporate and financial information on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Under applicable law and regulations the Directors are also responsible for preparing a Strategic Report, a Directors' Report and Directors' Remuneration Report that comply with the law and those regulations.

Each of the Directors, whose names and functions are listed in Directors' Report confirm that, to the best of their knowledge:

• the Company's financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

• the Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

The Directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

For and on behalf of the Board
Sarah Arkle
Chairman

29 th September 2022

Statement of Comprehensive Income

For the year ended 30th June 2022

	2022			2021
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
(Loss)/gains on investments held at fair value through profit or loss	-	(300,802)	(300,802)	-	420,640	420,640
Net foreign currency gains/(losses)	-	6,561	6,561	-	(2,201)	(2,201)
Income from investments	23,043	-	23,043	19,508	-	19,508
Interest receivable	158	-	158	115	-	115
Gross return/(loss)	23,201	(294,241)	(271,040)	19,623	418,439	438,062
Management fee	(3,537)	(8,252)	(11,789)	(3,798)	(8,862)	(12,660)
Other administrative expenses	(1,346)	-	(1,346)	(1,420)	-	(1,420)
Net return/(loss) before taxation	18,318	(302,493)	(284,175)	14,405	409,577	423,982
Taxation	(2,326)	(5,420)	(7,746)	(2,268)	-	(2,268)
Net return/(loss) after taxation	15,992	(307,913)	(291,921)	12,137	409,577	421,714
Return/(loss) per share	1.36p	(26.13)p	(24.77)p	1.02p	34.38p	35.40p

A final dividend of 0.83p (2021: 0.83p) per ordinary share has been proposed in respect of the year ended 30th June 2022, totalling

£9.7 million (2021: £9.9 million). Further details are given in note 9 on page 76 of the Annual Report.

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or

discontinued in the year.

The 'Total' column of this statement is the profit and loss account of the Company, and the 'Revenue' and 'Capital' columns

represent supplementary information prepared under guidance issued by the Association of Investment Companies. Net return/

(loss) after taxation represents the profit/(loss) for the year and also Total Comprehensive Income.

Statement of Changes in Equity

For the year ended 30th June 2022

	Called up share capital £'000	Share premium £'000	Capital redemption reserve £'000	Other reserves £'000	Capital reserves £'000	Revenue reserve1 £'000	Total £'000
At 30th June 2020	33,091	173,657	1,665	69,939	1,002,828	22,735	1,303,915
Repurchase of shares into Treasury	-	-	-	-	(10,662)	-	(10,662)
Share split charges	-	(26)	-	-	-	-	(26)
Net return	-	-	-	-	409,577	12,137	421,714
Dividends paid in the year (note 3)	-	-	-	-	-	(16,898)	(16,898)
At 30th June 2021	33,091	173,631	1,665	69,939	1,401,743	17,974	1,698,043
Repurchase of shares into Treasury	-	-	-	-	(20,890)	-	(20,890)
Net (loss)/return	-	-	-	-	(307,913)	15,992	(291,921)
Dividend paid in the year (note 3)	-	-	-	-	-	(15,926)	(15,926)
At 30th June 2022	33,091	173,631	1,665	69,939	1,072,940	18,040	1,369,306

¹ This reserve forms the distributable reserve of the Company and is used to fund distributions to investors.

Statement of Financial Position

At 30th June 2022

	2022 £'000	2021 £'000
Fixed assets
Investments held at fair value through profit or loss	1,313,276	1,685,041
Current assets
Debtors	4,203	13,869
Cash and cash equivalents	57,700	510
	61,903	14,379
Current liabilities
Creditors: amounts falling due within one year	(453)	(1,376)
Derivative financial liabilities	-	(1)
Net current assets	61,450	13,002
Total assets less current liabilities	1,374,726	1,698,043
Non current liabilities
Provision for capital gains tax	(5,420)	-
Net assets	1,369,306	1,698,043
Capital and reserves
Called up share capital	33,091	33,091
Share premium	173,631	173,631
Capital redemption reserve	1,665	1,665
Other reserve	69,939	69,939
Capital reserves	1,072,940	1,401,743
Revenue reserve	18,040	17,974
Total shareholders' funds	1,369,306	1,698,043
Net asset value per share	117.0p	143.0p

Statement of Cash Flows

For the year ended 30th June 2022

	2022 £'000	2021 £'000
Net cash outflow from operations before dividends and interest	(11,608)	(15,601)
Dividends received	18,579	16,618
Interest received	158	115
Overseas tax recovered	93	56
Net cash inflow from operating activities	7,222	1,188
Purchases of investments	(109,362)	(132,793)
Sales of investments	192,011	145,707
Settlement of forward currency contracts	98	(197)
Net cash inflow from investing activities	82,747	12,717
Repurchase of shares into Treasury	(21,670)	(9,720)
Dividend paid	(15,926)	(16,898)
Costs in relation to share split	-	(26)
Net cash outflow from financing activities	(37,596)	(26,644)
Increase/(decrease) in cash and cash equivalents	52,373	(12,739)
Cash and cash equivalents at start of year	510	13,534
Unrealised gain/(loss) on foreign currency cash and cash equivalents	4,817	(285)
Cash and cash equivalents at end of year	57,700	510
Increase/(decrease) in cash and cash equivalents	52,373	(12,739)
Cash and cash equivalents consist of:
Cash and short term deposits	487	232
Cash held in JPMorgan US Dollar Liquidity Fund	57,213	278
Total	57,700	510

Notes to the Financial Statements

For the year ended 30th June 2022

1.  Accounting policies

  Basis of accounting

The financial statements are prepared under the historical cost convention, modified to include fixed asset investments at fair value, and in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in April 2021.

All of the Company's operations are of a continuing nature.

The Directors believe that having considered the Company's investment objective (see page 3l of the Annual Report), risk management policies (see page 31 of the Annual Report), capital management policies and procedures (see page 87 of the Annual Report), the nature of the portfolio and expenditure projections, the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future. For these reasons, they consider that there is reasonable evidence to continue to adopt the going concern basis in preparing the financial statements. They have not identified any material uncertainties to the Company's ability to continue to do so over a period of at least twelve months from the date of these financial statements.

The policies applied in these financial statements are consistent with those applied in the preceding year.

2.  Return/(loss) per share

	2022 £'000	2021 £'000
Revenue return	15,992	12,137
Capital (loss)/return	(307,913)	409,577
Total (loss)/return	(291,921)	421,714
Weighted average number of shares in issue during the year	1,178,582,565	1,191,294,140
Revenue return per share	1.36p	1.02p
Capital (loss)/return per share	(26.13)p	34.38p
Total (loss)/return per share	(24.77)p	35.40p

3.   Dividends

(a)  Dividends paid and proposed

	2022 £'000	2021 £'000
Dividends paid
Unclaimed dividends refunded to the Company	(1)	-
2021 final dividend of 0.83p (2020: 0.9p) per share	9,813	10,710
2022 interim dividend of 0.52p (2021: 0.52p) per share	6,114	6,188
Total dividends paid in the year	15,926	16,898
Dividend proposed
2022 final dividend proposed of 0.83p (2021: 0.83p) per share	9,715	9,858

All dividends paid and proposed in the year have been funded from the revenue reserve.

The dividend proposed in respect of the year ended 30th June 2022 is subject to shareholder approval at the forthcoming Annual General Meeting. In accordance with the accounting policy of the Company, this dividend will be reflected in the financial statements for the year ending 30th June 2023.

(b) Dividend for the purposes of Section 1158 of the Corporation Tax Act 2010 ('Section 1158')

The requirements of Section 1158 are considered on the basis of the dividend proposed in respect of the financial year, shown below.

The revenue available for distribution by way of dividend for the year is £15,992,000 (2021: £12,137,000). The revenue reserve after payment of the final dividend will amount to £8,323,000 (2021: £8,116,000).

	2022 £'000	2021 £'000
2022 interim dividend of 0.52p (2021: 0.52p) per share	6,114	6,188
2022 final dividend proposed of 0.83p (2021: 0.83p) per share	9,715	9,858
	15,829	16,046

4.  Net asset value per share

	2022	2021
Net assets (£'000)	1,369,306	1,698,043
Number of shares in issue	1,170,512,230	1,187,666,096
Net asset value per share	117.0p	143.0p

5.  Status of results announcement

2022 Financial Information

The figures and financial information for 2022 are extracted from the Annual Report and Accounts for the year ended 30th June 2022 and do not constitute the statutory accounts for the year. The Annual Report and Accounts include the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Accounts will be delivered to the Register of Companies in due course.

2021 Financial Information

The Figures and financial information for 2021 are extracted from the published Annual Report and Accounts for the year ended 30th June 2021 and do not constitute the statutory accounts for that year. The Annual Report and Accounts has been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

29th September 2022

For further information:

Nira Mistry,

JPMorgan Funds Limited

020 7742 4000

ENDS

A copy of the 2022 Annual Report will shortly be submitted to the FCA's National Storage Mechanism and will be available for inspection at  https://data.fca.org.uk/#/nsm/nationalstoragemechanism    

The 2022 Annual Report will shortly be available on the Company's website at  www.jpmemergingmarkets.co.uk    where up-to-date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

  JPMORGAN FUNDS LIMITED

ENDS

A copy of the annual report will shortly be submitted to the National Storage Mechanism and will be available f or inspection at  National Storage Mechanism | FCA

The annual report will shortly be available on the Company's w ebsite at www.jpmemergingmarkets.co.uk where
up-to-date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

JPMORGAN FUNDS LIMITED

 

END

 

 

FR SEFESUEESEIU