Half-year Report

RNS Number : 6545A

JPMorgan Glb Emerging Mkts Inc Tst

27 March 2017

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN GLOBAL EMERGING MARKETS INCOME TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS

ENDED 31ST JANUARY 2017

Legal Entity Identifier: 549300OPJXU72JMCYU09

Information disclosed in accordance with DTR 4.2.2

chairman's statement

Performance

For the six months ended 31st January 2017, the Company reported a 7.6% return on net assets per share, which compares with a return of 10.7% from the MSCI Emerging Markets Index (in sterling, with dividends reinvested). The Investment Managers' Report reviews the Company's performance and comments on the investment strategy.

Including dividends the total return to shareholders over the six months to 31st January 2017 was 7.4%. At 31st January 2017 the share price was trading at a discount to net asset value of 1.7%, compared to 1.5% at 31st July 2016.

Dividends

In the Company's current financial year, the Board has declared first and second interim dividends of 1.0p each, in line with the same period last year.

Earnings for Emerging Markets' companies have remained weak, as explained in the Investment Managers' report on page 5 of the Half Year Report and the Board has carefully monitored dividend receipts over the course of the year.

Share Repurchases

In the six months to 31st January 2017, the Board did not carry out any share repurchases. The Board will continue to monitor closely imbalances between the supply and demand of the Company's shares and is prepared to buy back shares where appropriate in the interests of shareholders.

Outlook

Valuations of Emerging Markets remain attractive. Historically, these levels of valuations have been followed with positive rates of return. However, the risks continue to weigh heavily on these markets. This is a difficult environment for the Company's investment strategy which is grounded in fundamental research into companies. It is an environment where political factors may exercise the greater influence on the trajectory of markets. This is a fact of life in Emerging Markets, which is why they are never for the faint-hearted, but the tensions appear unusually elevated today. This, of course, is reflected in market valuations and therefore also represents the opportunity.

Andrew Hutton

Chairman

27th March 2017

Investment managers' report

Introduction

The six months under review were a politically tumultuous period for Emerging Market equities. Through the summer months, the asset class picked up on the back of early signs of a genuine improvement in fundamentals and currencies which had reached a discount to fair value. However, the surprise election of Donald Trump in early November led to an immediate sell-off in Emerging Markets' stocks and currencies, as many investors feared that the US President-elect might follow through on his campaign threats. The immediate impact was seen via higher US bond yields, which had a knock-on impact on Emerging Markets' currencies in general. The currency impact was most keenly felt by Mexico and Turkey, as the peso and lira both hit decade lows against US Dollar. Not all Emerging Markets have struggled, with Russia, for example, benefiting from the higher oil price, boosted by OPEC's decision to cut production, and was further helped by news that non-OPEC countries would also reduce their oil output. More broadly, commodities have continued to rise, with industrial commodities benefiting from stronger data out of China.

In the six months to 31st January 2017, the Company's net asset value rose by 7.6%, while the share price was up 7.4%, both on a total return basis. This compares to an increase of 10.7% for the benchmark, the MSCI Emerging Markets Index (on a total return (net) basis, in sterling terms).

Performance Review

In a period when the asset class posted double-digit returns, our performance lagged as stock ideas in Brazil, China and Mexico negatively impacted returns, although this was somewhat countered by exposure to Russia and South Africa.

Latin America, as a region, was adversely impacted by the US election result in early November. The Mexican market fell sharply over concerns about what could happen to its trading relationship with the US. This is a market which we have slowly been adding to during 2016 as it has lagged, and dividend yield opportunities opened up. However, stock selection here, unsurprisingly, detracted. The largest stock-level detractor was Kimberly Clark de Mexico, one of our top holdings in the portfolio and a company with a good dividend history. The fundamentals for that company will clearly be more challenged in the near term, but it has done an excellent job historically of improving efficiency and putting through well-judged price rises to cope with issues like this. Brazil was another area of relative weakness. The portfolio benefited from increased exposure to Brazil over the review period, but our stock selection detracted. Most notably, we do not have a position in Vale, the iron ore producer, which has benefited from the commodities rally.

A performance headwind was felt by the longstanding structural underweight to internet names, by virtue of the low, if any, yield these companies deliver, combined with a lack of free cash flow. Internet names, in particular Alibaba in China, performed well and this detracted from performance.

Stock selection was positive in South Africa, notably financial stock names such as MMI, an insurance company and Barclays Africa Group, a bank. Elsewhere, Russian exposure was a strong contributor through the period, particularly following the US election. The market was a stand-out performer, having benefited from improved political sentiment following the election, amid hopes around an easing in sanctions. Higher oil prices were also a catalyst for the market, and our overweight here, driven by individual stock decisions, was positive for returns. Finally, a long-term structural underweight to India (due to low payout ratios) was positive as the market lagged following the surprise demonetisation reform from Prime Minister Modi, which withdrew all large-value bank notes from circulation in a bid to reduce the informal economy.

Dividends

The Company's approach, which is to invest in a diversified portfolio of relatively high-yielding stocks to receive dividends from across sectors and countries, remains unchanged. The environment continues to be challenging, despite the positive improvements. The absolute trajectory of dividend payments from companies is still weak, which acts as a dampener on Emerging Markets' yield-paying stocks. Emerging Markets' dividends remain under pressure, as companies struggle to increase their payouts against a challenging growth backdrop, given the general pressure on Emerging Markets' company earnings that we have seen for the last couple of years. This cyclical pressure was felt by companies across the portfolio and affected earnings and consequently dividend payments. Our expectation is that payout ratios will be held steady by Emerging Markets' companies, but the overall earnings environment remains weak, which means we should still be cautious when considering dividend receipts from the portfolio in the near term.

Portfolio Changes

Portfolio changes over the year have been modest. This is consistent with our desire to invest for the long term and benefit from the continued dividend streams of the companies that we hold.

Sales (whether outright or position size reduction) in the year can generally be divided into three types:

1.   Dividend payout disappointments

      With our research focus on understanding dividend policies, dividend payout disappointments tend to be rare. During the review period, the Company has not faced any dividend payout ratio disappointments.

2.   Companies where our fundamental view on dividend sustainability or growth deteriorated relative to other opportunities

      We sold out of PZU, a Polish insurer. This was due to a change in view on the dividend outlook for the stock. The change in government in Poland prompted the company to change its strategy to pursuing M&A within the Polish financial sector. This clearly raises risks from an execution viewpoint and points to poor use of excess capital.

3.   Companies where our view on dividends remained positive but valuations had increased to the extent that the stocks looked less attractive

      We have further reduced our Brazil exposure following a strong rerating of valuations and an appreciating currency in 2016.

Purchases have been driven by individual stock opportunities, but overall we have not made dramatic changes to the Company's portfolio. We continue to find many attractive dividend-paying companies in Emerging Markets.

Our disciplined, long-term approach which led us to invest into weakness in Brazil, Russia and South Africa in 2015 has also led us to increase our Mexican exposure during 2016. The Mexican peso weakened throughout the year allowing us to build positions in quality companies (Walmart de Mexico, Fibra Uno) which we believe can offer strong income and growth potential, however, as noted above, following the sharp decline of the market and currency post the US election result, these hurt performance. Another laggard market, Turkey, has also provided select attractively-valued opportunities, and as such we have moderately increased our overweight here, with oil refiner Tupras a recent addition.

Outlook

We enter 2017 cautiously optimistic about Emerging Markets' fundamentals and the opportunity in Emerging Markets' equities. The recovery currently underway in a number of emerging economies, and the stability we foresee in China this year, support expectations of a more broad-based turnaround in Emerging Markets' fundamentals in the medium term. US Dollar strength and the direction of US trade and foreign policy under President Trump's administration remain the most important risks, in our view.

Overall, our positioning from a country and sector perspective has not changed materially. From a sector perspective, we favour telecoms and consumer companies (both discretionary and staples), while we maintain underweight positions to industrials and energy. By country, we are still overweight Taiwan and South Africa, and underweight Korea and China. As always, these country and sector positions are the result of individual stock decisions.

Omar Negyal

Jeffrey Roskell

Amit Mehta

Investment Managers

27th March 2017

Interim Management Report

The Company is required to make the following disclosures in its interim report.

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company have not changed and fall into the following broad categories: investment and strategy; financial; corporate governance and shareholder relations; operational and accounting, legal and regulatory. Information on each of these areas is given in the Business Review within the Company's Annual Report for the year ended 31st July 2016.

Related Parties Transactions

During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company during the period.

Going Concern

The Directors believe, having considered the Company's investment objectives, risk management policies, capital management policies and procedures, nature of the portfolio and expenditure projections, that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future and, more specifically, that there are no material uncertainties pertaining to the Company that would prevent its ability to continue in such operational existence for at least twelve months from the date of the approval of this half yearly financial report. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the financial statements.

Directors' Responsibilities

The Board of Directors confirms that, to the best of its knowledge:

(i)  the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with FRS 104 'Interim Financial Reports' and gives a true and fair view of the state of the affairs of the Company and of the assets, liabilities, financial position and net return of the Company, as at 31st January 2017, as required by the UK Listing Authority Disclosure Guidance and Transparency Rules ('DTR') 4.2.4R; and

(ii) the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R.

In order to provide these confirmations, and in preparing these financial statements, the Directors are required to:

•    select suitable accounting policies and then apply them consistently;

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

•    state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; 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.

For and on behalf of the Board

Andrew Hutton

Chairman

27th March 2017

Statement of comprehensive income
For the six months ended 31st January 2017

	(Unaudited) Six months ended 31st January 2017			(Unaudited) Six months ended 31st January 20161			(Audited) Year ended 31st July 2016
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments held at fair value through profit or loss	-	23,033	23,033	-	(39,653)	(39,653)	-	41,205	41,205
Net foreign currency losses	-	(598)	(598)	-	(2,300)	(2,300)	-	(3,669)	(3,669)
Income from investments	6,081	-	6,081	4,733	-	4,733	17,136	-	17,136
Interest receivable and similar income	53	-	53	6	-	6	32	-	32
Gross return/(loss)	6,134	22,435	28,569	4,739	(41,953)	(37,214)	17,168	37,536	54,704
Management fee	(576)	(1,344)	(1,920)	(458)	(1,070)	(1,528)	(933)	(2,176)	(3,109)
Other administrative expenses	(408)	-	(408)	(378)	-	(378)	(721)	-	(721)
Net return/(loss) on ordinary activities before finance costs and taxation	5,150	21,091	26,241	3,903	(43,023)	(39,120)	15,514	35,360	50,874
Finance costs	(134)	(314)	(448)	(113)	(264)	(377)	(234)	(545)	(779)
Net return/(loss) on ordinary activities before taxation	5,016	20,777	25,793	3,790	(43,287)	(39,497)	15,280	34,815	50,095
Taxation	(146)	-	(146)	(394)	-	(394)	(1,179)	(448)	(1,627)
Net return/(loss) on ordinary activities after taxation	4,870	20,777	25,647	3,396	(43,287)	(39,891)	14,101	34,367	48,468
Return/(loss) per share (note 4)	1.66p	7.06p	8.72p	1.15p	(14.71)p	(13.56)p	4.79p	11.68p	16.47p

¹ Relevant figures have been amended in line with the current presentation adopted. Under FRS 102, liquidity funds are classified as cash equivalents.

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

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.

The net return/(loss) on ordinary activities represents the profit/(loss) per share for the period and also the total comprehensive income.

statement of changes in equity

For the six months ended 31st January 2017

	Called up	Capital
	share	redemption	Share	Other	Capital	Revenue
	capital	reserve	premium	reserve	reserves	reserve1	Total
Six months ended 31st January 2017 (Unaudited)
At 31st July 2016	2,943	13	218,497	101,113	12,009	9,848	344,423
Net return on ordinary activities	-	-	-	-	20,777	4,870	25,647
Dividends paid in the period	-	-	-	-	-	(8,530)	(8,530)
At 31st January 2017	2,943	13	218,497	101,113	32,786	6,188	361,540
Six months ended 31st January 2016 (Unaudited)
At 31st July 2015	2,943	13	218,497	101,276	(22,358)	10,165	310,536
Net (loss)/return on ordinary activities	-	-	-	-	(43,287)	3,396	(39,891)
Dividends paid in the period	-	-	-	-	-	(8,535)	(8,535)
At 31st January 2016	2,943	13	218,497	101,276	(65,645)	5,026	262,110
Year ended 31st July 2016 (Audited)
At 31st July 2015	2,943	13	218,497	101,276	(22,358)	10,165	310,536
Repurchase of shares into Treasury	-	-	-	(163)	-	-	(163)
Net return on ordinary activities	-	-	-	-	34,367	14,101	48,468
Dividends paid in the year	-	-	-	-	-	(14,418)	(14,418)
At 31st July 2016	2,943	13	218,497	101,113	12,009	9,848	344,423

 ¹  This reserve forms the distributable reserve of the Company and may be used to fund distribution of profits to investors via dividend payments.

statement of financial position

At 31st January 2017

	(Unaudited)	(Unaudited)	(Audited)
	31st January 2017	31st January 2016	31st July 2016
	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	384,401	282,575	360,612
Current assets
Derivative financial assets	2	-	1
Debtors	1,508	1,905	5,612
Cash and cash equivalents1	7,869	6,494	11,663
	9,379	8,399	17,276
Current liabilities
Creditors: amounts falling due within one year	(445)	(664)	(3,337)
Derivative financial liabilities	(1)	(2)	-
Net current assets	8,933	7,733	13,939
Total assets less current liabilities	393,334	290,308	374,551
Creditors: amounts falling due after more than one year	(31,794)	(28,198)	(30,128)
Net assets	361,540	262,110	344,423
Capital and reserves
Called up share capital	2,943	2,943	2,943
Capital redemption reserve	13	13	13
Share premium	218,497	218,497	218,497
Other reserve	101,113	101,276	101,113
Capital reserves	32,786	(65,645)	12,009
Revenue reserve	6,188	5,026	9,848
Total equity shareholders' funds	361,540	262,110	344,423
Net asset value per share (note 5)	122.9p	89.1p	117.1p

 ¹     This line item combines the two lines of 'Investment in liquidity fund held at fair value through profit or loss' and 'Cash and short term deposits' in the financial statements for the half year ended 31st January 2016. Under FRS 102, liquidity funds meet the conditions of cash equivalents as they are held for cash management purposes.

Notes to the financial statements 

For the six months ended 31st January 2017

1.     Financial statements

The information contained within the financial statements in this half year report has not been audited or reviewed by the Company's auditor.

The figures and financial information for the year ended 31st July 2016 are extracted from the latest published financial statements of the Company and do not constitute statutory accounts for that year. Those financial statements have been delivered to the Registrar of Companies and including the report of the auditor which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.

2.     Accounting policies

The financial statements have been prepared in accordance with the Companies Act 2006, FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' of the United Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the revised 'SORP') issued by the Association of Investment Companies in November 2014.

FRS 104, 'Interim Financial Reporting', issued by the Financial Reporting Council ('FRC') in March 2015 has been applied in preparing this condensed set of financial statements for the six months ended 31st January 2017.

The Company has elected not to prepare a Statement of Cash Flows for the current period on the basis that substantially all of its investments are liquid and carried at market value.

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

The accounting policies applied to this condensed set of financial statements are consistent with those applied in the financial statements for the year ended 31st July 2016.

3.     Dividends paid

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st January 2017	31st January 2016	31st July 2016
		£'000	£'000	£'000
	2016 Fourth interim dividend of 1.90p (2015: 1.90p)	5,589	5,592	5,592
	First interim dividend paid of 1.00p (2016: 1.00p)	2,941	2,944	2,944
	Second interim dividend paid of n/a (2016: 1.00p)	n/a	n/a	2,941
	Third interim dividend paid of n/a (2016: 1.00p)	n/a	n/a	2,941
	Total dividends paid in the period/year	8,530	8,536	14,418

All dividends paid and declared in the period have been funded from the Revenue Reserve.

A second interim dividend of 1.00p per share, amounting to £2,941,000 has been declared payable in respect of the six months ended 31st January 2017.

4.     Return/(loss) per share

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended	Six months ended	Year ended
		31st January 2017	31st January 2016	31st July 2016
		£'000	£'000	£'000
	Return/(loss) per share is based on the following:
	Revenue return	4,870	3,396	14,101
	Capital return/(loss)	20,777	(43,287)	34,367
	Total return/(loss)	25,647	(39,891)	48,468
	Weighted average number of shares in issue during the period	294,140,161	294,339,438	294,242,522
	Revenue return per share	1.66p	1.15p	4.79p
	Capital return/(loss) per share	7.06p	(14.71)p	11.68p
	Total return/(loss) per share	8.72p	(13.56)p	16.47p

5.     Net asset value per share

		(Unaudited)	(Unaudited)	(Audited)
		31st January 2017	31st January 2016	31st July 2016
	Net assets (£'000)	361,540	262,110	344,423
	Number of shares in issue	294,140,161	294,339,438	294,140,161
	Net asset value per share	122.9p	89.1p	117.1p

 6.    Fair valuation of investments

The fair value hierarchy analysis for financial instruments held at fair value at the period end is as follows:

		(Unaudited) Six months ended 31st January 2017		(Unaudited) Six months ended 31st January 2016				(Audited) Year ended 31st July 2016
		Assets	Liabilities		Assets	Liabilities	Assets		Liabilities
		£'000	£'000		£'000	£'000	£'000		£'000
	Level 1	384,401	-		282,575	-	360,612		-
	Level 21	2	(1)		-	(2)	1		-
	Total value of investments	384,403	(1)		282,575	(2)	360,613		-

¹ Includes foreign currency contracts.

JPMORGAN FUNDS LIMITED

27th March 2017

For further information, please contact:

Divya Amin

For and on behalf of

JPMorgan Funds Limited

020 7742 4000

ENDS

A copy of the half year report will be submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM 

The half year report will also shortly be available on the Company's website at www.jpmglobalemergingmarketsincome.co.uk where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

 

END

 

 

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