Final Results to 31st July 2020

RNS Number : 0797D

JPMorgan Glb Emerging Mkts Inc Tst

23 October 2020

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN GLOBAL EMERGING MARKETS INCOME TRUST PLC

FINAL RESULTS FOR THE YEAR ENDED 31ST JULY 2020

Legal Entity Identifier: 549300OPJXU72JMCYU09

Information disclosed in accordance with DTR 4.2.2

CHAIRMAN'S STATEMENT

Performance

The financial year to 31st July 2020 has been a very tough one for the Company in terms of both absolute and relative performance. Global financial markets in the first half were dominated by concerns about Brexit and US/China trade wars. The second half of the financial year was completely overshadowed by the global COVID-19 health pandemic, resulting in some very challenging months for the global economy. Whilst governments and central banks responded to the crisis quickly and proactively with unprecedented levels of monetary and fiscal support, it will take some time to assess its full impact across the developed world and emerging economies, markets and companies.

Our benchmark, the MSCI Emerging Markets Index with net dividends reinvested (in sterling terms), produced a return of -0.6% over the financial year. Against this background, our Investment Managers produced the total return on net assets of -9.1%. The total return to shareholders was -16.0% reflecting the considerable widening of the share price discount to net asset value from 1.0% to 8.8%, as the Company's share price decreased from 143.5p to 115.5p over the financial year. Since year-end, the Company's share price has increased to 120.0p at the time of writing.

The Investment Managers' Report that follows provides more detail on the Company's investment strategy and performance. The Board recognises the wide difference between the total return on net assets and the performance of the benchmark. The Company's income objective means that the composition of the portfolio is significantly different to the composition of the benchmark index. This means that the pattern of returns may, in any given period, vary meaningfully from the benchmark index, which the Board understands and accepts. This has been the case for the 10 year returns for the Company since 1st August 2010, when the compound total return on net assets was +92.7% compared to the return of the benchmark index of +65.6%. However, in the past year, dividend income seeking strategies have underperformed broad benchmarks and your Company's investment returns have been negatively impacted.

Revenue and Dividends

Gross revenue for the year amounted to £16.4 million (2019: £22.3 million) with net revenue of £12.7 million (2019: £17.6 million). Net revenue return per ordinary share for the year, calculated on the average number of shares in issue, was 4.28p (2019: 5.92p).

In the current financial year, the Board paid three interim dividends of 1.0p per share and has announced the payment of a fourth interim dividend of 2.1p per share. This brings the total dividend for the year to 5.1p per share, maintained at the same level as last year. The Board highlights that whilst the revenues generated in this financial year did not cover the dividends paid, it felt that it was appropriate to use revenue reserves to support the current year's fourth interim dividend. We recognise that dividend generation from the Company is important to our shareholders and it is a distinguishing feature of investment trusts that we are able to smooth the dividend stream in this way. We cannot guarantee that we will always be able to do this but recognise that we currently have remaining revenue reserves after the payment of the fourth quarterly interim dividend that equate to 60% of future annual dividends at the current level.

The Board continues the approach of paying four interim dividends, reflecting the support we have received from shareholders for a regular and timely income stream. The Board is seeking shareholder authority to continue this dividend payment policy for the Company at the forthcoming Annual General Meeting ('AGM').

As shareholders are aware, the Company receives dividends in the currencies of developing countries and US dollars, but pays dividends in sterling. It has not been the Company's policy to hedge currency risk as that is expensive and, for many currencies, impracticable. That policy inevitably means that the Company's asset values and cash flows will be adversely or favourably affected by currency movements from time to time.

Share Capital

The Company did not carry out any share issuance or share repurchases during the year nor any since the year end.

The Board is seeking shareholder authority at the forthcoming AGM to have the flexibility to issue up to a further 10% of the Company's issued share capital. The intention is to use this authority to meet demand for the Company's shares as and when they trade at an appropriate premium to net asset value.

Key Performance Indicators ('KPIs')

The Board tracks a series of KPIs. Further details may be found on page 23 of the 2020 Annual Report. The Board pays particular attention to performance, ongoing charges, gearing, income available to pay dividends and the investment risk of the portfolio.

Gearing

The Board regularly discusses gearing with the Investment Managers who use it to enhance long-term shareholder returns. As at the year-end, the Company had two US $20 million fixed rate loan facilities with National Australia Bank, repayable in October 2020 (2.31% per annum) and November 2022 (3.28% per annum). Upon maturity of the first loan facility on 8th October 2020, the Company entered into a three year US $20 million rolling interest loan facility with ING Bank, repayable in October 2023. This resulted in a lower blended interest rate for the Company. As at 31st July 2020, gearing stood at 6.9% (2018: 5.9%).

Management Fee

The Board is pleased to report that following a review, it has reached agreement with JPMorgan to amend the Company's investment management fee arrangements. With effect from 1st August 2020, the investment management fee will be charged at the rate of 0.9% per annum (previously 1.0% per annum) on the net asset value of the Company's portfolio.

The fee will continue to be calculated and paid monthly.

The Board and Corporate Governance

There have been no changes to the composition of the Board during the year. Following the Board's annual evaluation by the Nomination Committee, it is felt that the Board's current composition and size are appropriate. The Board has a plan to refresh the Board in an orderly manner over time as part of its long term succession planning. However, in anticipation of the retirement from 2021 of the longer serving Directors, starting with Richard Robinson at the conclusion of the 2021 AGM, and to ensure continuity, the Board has commenced a search to recruit a new non-executive Director in early 2021. The Company has engaged Nurole Limited, a recruitment specialist for board level searches, as part of the recruitment process. Furthermore, as part of the Board's ongoing succession planning, I myself will be retiring from the Board at the conclusion of the 2022 AGM after having served on the Board from 2011 and as its Chairman since 2018. The Board plans to start a further recruitment process to appoint another new Director and to agree the next Board Chairman by early 2022.

The Board supports annual re-election for all Directors, as recommended by the UK Corporate Governance Code, and therefore all of the Directors will stand for re-election at the forthcoming Annual General Meeting. Shareholders who wish to contact the Chairman or other members of the Board may do so through the Company Secretary or the Company's website, details of which appear below.

Environmental, Social and Governance ('ESG')

As detailed in the Investment Managers' report and the separate Environmental, Social and Governance Statement included on page 15 of the 2020 Annual Report, ESG considerations are integral to the Investment Managers' investment process. The Board is mindful of the ever increasing focus on ESG and sustainable investing, holds regular discussions about these factors and receives reports from the Investment Managers. We share the Investment Managers' view of the importance of ESG when making investments that are sustainable over the long term and the necessity of continued engagement with investee companies throughout the duration of the investment.

Operations of the Company's Key Service Providers under COVID-19

The Board is pleased to report that, since the onset of the pandemic and throughout, the Manager and the Company's other service providers have been able to adjust their business models to accommodate working from home requirements. The Board has been closely monitoring all service arrangements and has received assurances that the Company's operations, including the management of the portfolio, have continued as normal with no reduction in the level of service provided nor any control issues being identified.

Annual General Meeting

We are holding the Company's Annual General Meeting ('AGM') at 60 Victoria Embankment, London EC4Y 0JP on 2nd December 2020 at 11.30 a.m. Please note that in view of the current restrictions regarding the COVID-19 pandemic and the continuing imposition of social distancing measures and prohibitions on large public gatherings by the UK Government, only the formal business will be conducted at the AGM and the minimum legal requirements for an AGM will be followed. There will be no investor presentation in person by the investment team. Shareholders will not be allowed to attend the AGM and, indeed, entry will be refused in line with the prevailing protocol. In light of the changed format, the Board strongly encourages all shareholders to exercise their votes in respect of the meeting in advance, by completing and returning their proxy forms. This will ensure that the votes are registered, given that attendance at the AGM is not possible. A presentation from the Investment Managers, which would have been delivered at the Annual General Meeting, will be available for shareholders to view on the Company's website approximately one week in advance of the Annual General Meeting.

In addition, shareholders are encouraged to raise any questions in advance of the AGM via the 'Ask the Question' link found under the 'Contact Us' section on the Company's website (www.jpmglobalemergingmarketsincome.co.uk) or by email at [e-mail] Any questions received will be replied to via the Company Secretary ahead of the AGM or within one day after the AGM as appropriate.

In the event that the situation changes, the Company will update shareholders through an announcement to the London Stock Exchange and on the Company's website.

Outlook

Shareholders will be disappointed by the Company's performance last year and may be worried by the continuing stream of medical and economic news associated with the COVID-19 pandemic. Individuals, companies and markets across the world face difficult circumstances and we recognise the huge importance of the fiscal and monetary support which continues to be provided by many governments. We do not know how long it will take to find a safe and effective vaccine, nor to return to pre-COVID-19, 'normal' life. Despite these global uncertainties, we are reassured that the Investment Managers continue to pursue a disciplined investment process with a careful approach to risk management, which is supported by the extensive worldwide research resources of JPMorgan. Your Board is confident that this thoughtful approach to identifying sound, sustainable investments with the prospects of attractive income and capital growth will lead to good long-term returns for shareholders.

Sarah Fromson

Chairman

23rd October 2020

INVESTMENT MANAGERS' REPORT

Performance review - disappointment amidst pandemic upheaval

The Company's return on net assets for the year to 31st July 2020 was -9.1%, trailing our benchmark, the MSCI Emerging Markets Index, which fell by 0.6% (on a total return (net) basis, in sterling terms) although this figure disguises intra-period volatility. The value of the Company's shares (including dividends) fell by 16.0% over the period, and the discount at which the Company's shares traded to Net Asset Value (NAV) had widened to 8.8% by the end of the period, from 1.0% a year earlier.

Performance during the financial year was disappointing. We discuss the portfolio drivers of underperformance in detail below but would begin with a few high level points:

• The Income investment style was a significant headwind for the portfolio, with 'pure growth' stocks driving the market in the year and yield stocks lagging.

• In a time of impaired economic growth (partly due to COVID-19), the market continued to rerate low yield stocks which could demonstrate high revenue growth, even if valuations looked high. This was a feature of equity markets globally, including Emerging Markets. As a reminder, we do not invest in zero dividend or very low yield stocks as they would not contribute to income generation for the portfolio.

• We remain comfortable with the underlying fundamentals of the portfolio and ultimately see that as the key driver for long term positive performance. During previous episodes where our dividend investing style has temporarily been out of favour, we have continued with our disciplined process and have seen performance recover in subsequent years.

We continue to think our Income approach is a positive way to invest in Emerging Markets in the long term; however, we recognise this has been more challenging recently, particularly in the last year. The table below shows how Emerging Markets stocks delivering dividend yields of 0.5% or less performed over the Company's reporting period, compared to the rest of the market.

Emerging Markets Stocks - Dividend yield   Performance

0 to 0.5%  25.5%

Above 0.5%  -8.2%

Weighted average performance from 31/7/19 to 31/7/20 in GBP

Sources: Bloomberg, JPMAM

During this year, the portfolio performed meaningfully better than higher yielding stocks in Emerging Markets (portfolio NAV return was -9.1% compared to the MSCI EM High Dividend Yield index return of -16.7%). Clearly this was not enough to produce positive relative performance versus our official MSCI EM benchmark.

The market moves described above also led to a higher proportion of very low yield stocks in Emerging Markets - reaching a point we have not seen for many years. We have seen these kinds of temporary style disconnects before, though not usually of this magnitude. One key takeaway from those periods was that we should continue with our disciplined process. A good example of this was in 2017 when the market was also narrowly led by growth stocks - we stuck to our process and relative performance improved significantly in 2018 and 2019, partly as style headwinds faded.

Consequently, although this has been a difficult environment from a performance perspective, we continue with our stock selection process focusing on dividend yield, dividend sustainability, and long-term growth prospects.

Moving on to broader market drivers: at the halfway point of the Company's financial year, performance had been tested by the backdrop of sluggish economic growth and continuing geopolitical tensions, particularly the simmering trade dispute between the world's two largest economies, the United States and China. Since the end of January, however, it is the COVID-19 public health crisis that has dominated headlines and wrought such upheaval. Apart from the enormous human cost of this still-evolving crisis, the pandemic has precipitated severe economic weakness across Emerging Markets and, indeed, across the globe, with industrial activity spiralling downwards and earnings challenged in an unprecedented manner. This environment proved to be extremely difficult for Emerging Market equities, particularly those with an income focus like ours.

March was a month of global stock market lows, as COVID-19 panic gripped markets and investor sentiment plunged. Subsequently, markets did recover some ground, bolstered by unprecedented levels of governmental and central bank support. However, market volatility lingered through to the end of the Company's reporting period, amidst fragile sentiment and fears of a 'second wave' resurgence in COVID-19 cases.

In our Emerging Markets universe, we witnessed some differentiation across specific countries, both in terms of policy response and economies bouncing back. This factor played a part in the Company's overall portfolio performance. More than 60% of our portfolio is invested in China, Taiwan, and South Korea whose economies demonstrated resilience and recovered well in a relatively short space of time.

What have been the drivers of the Company's performance over the year?

When explaining the Company's underperformance relative to its benchmark, looking at the top five and bottom five individual stock contributors is instructive. The Company's relative underperformance was caused by a mixture of stocks that we own and others that we do not.

Top 5 (contributors)  Bottom 5 (detractors)

Taiwan Semiconductor Manufacturing (TSMC)  Alibaba (not held)

Vanguard International Semiconductor  Tencent (not held)

Mediatek  Santander Mexico

Novatek Microelectronics  Sberbank

Hong Kong Exchange   Odontoprev

Top contributors

Four of our top five performance contributors were Taiwanese technology stocks. Taiwan is our largest country overweight position relative to the Company's benchmark and we tend to find many attractive income ideas there; it is a market with strong business franchises and a positive dividend culture. In this period, the portfolio's semiconductor and chip design stocks performed particularly well. Demand for these products continued to grow, and we believe these businesses have specific capabilities within their niche technology fields to be able to maintain strong business positions and market share.

The Taiwanese contribution was led by Taiwan Semiconductor Manufacturing Company (TSMC), our largest stock position. We consider TSMC, the dominant outsourcing semiconductor manufacturer globally, a premium business within our strategic classification framework. TSMC reported strong second-quarter results, with the company seeing particularly strong demand for its manufacturing capability for chips used in 5G phone networks and high performance computing.

Top detractors

It is interesting to note that the two largest drags on relative performance were stocks that we do not own as they pay very low or zero dividends, e-commerce retailing giant Alibaba and the world's largest gaming company Tencent. Both performed very well over the period but fall into the 'pure growth' category of stocks we mentioned earlier. As such, neither stock fits our income-driven investment criteria, and their absence from our portfolio had a significant negative impact on relative performance. This is similar to 2017 where a similar environment caused a relative drag on performance as a result of the strong performance of ecommerce stocks.

In terms of other 'Bottom Five' stocks, the next two most significant contributors were both banks, Santander Mexico and Russia's largest bank Sberbank. COVID-19 has delivered huge challenges for banking institutions - not only have they been affected by the economic downturns but, in some regions, regulators have instructed banks to pause dividends, to help preserve capital. There were some positives, for example Sberbank still committing to paying a healthy (albeit delayed) dividend from 2019 earnings, but overall, our exposure to banking stocks was negative in performance terms.

The search for income

The Company's approach of investing in a diversified portfolio of higher yield and higher profitability stocks to receive dividends from across sectors and countries has not changed. However, this search has become tougher, as referenced earlier, as many companies around the world have been forced to curtail, or reduce, dividend payments to shareholders in the fall-out from COVID-19. However, despite the formidable challenges facing them, our portfolio companies have tended to continue paying dividends, albeit typically at reduced levels. Such commitment reinforces the idea of Emerging Market companies as a reliable income source for investors.

The cyclical economic slowdown precipitated by COVID-19 and its hugely negative impact on earnings - both year-to-date and, in all likelihood, for some considerable time in the future - is well documented. Company management teams have had to make very difficult choices in terms of conserving cash and strengthening balance sheets.

The banking sector has been particularly badly hit both by the economic shock of COVID-19 and by many global regulators forcing banks to suspend dividend pay-outs altogether. Across our universe, there was a harsher regulatory response from many non-Asian Emerging Markets (for example, Hungary, Poland, Mexico) than from Asian ones (e.g. China, Taiwan, Indonesia).

Reducing dividend levels this year precipitated a decline in the Company's dividend receipts, which dropped by 26.5%. However, this situation allows us to highlight an advantage of the investment trust structure; companies like ours can allocate up to 15% of their investment income in good years to later draw on these reserves in trickier times, when constituent portfolio companies may not be able to sustain their own dividend payments. This structure has enabled the Company to maintain its dividend of 5.1p this year, by utilising revenue reserves that had been built up in earlier years.

Although we acknowledge that COVID-19-related uncertainty could continue to hamper dividend levels for some time, we continue to believe in the long-term dividend-producing potential of the Company's portfolio. That is why, during our stock selection process, analysis of dividend sustainability and growth potential is extremely important, in addition to the level of yield itself.

As a reminder, the Company receives dividends in local currencies and US dollars but pays dividends in sterling; therefore, movements in sterling have an impact on the value of dividend payments.

Spotlight on portfolio positioning

We build the portfolio on a 'bottom-up' basis, selecting individual stocks for their dividend-paying ability. Our policy is to invest for the long term, to benefit from the continued dividend streams of the companies we hold. However, where companies have paused or skipped dividends we have tended to sell or reduce our positions, except in a few cases where we think there is a prospect of a resumption within a realistic timeframe (e.g. within the next year or so).

In this section we highlight portfolio changes we have made over the reporting period, together with a brief update on our country and sector exposures.

Within Emerging Markets, there are certain territories where we naturally find more dividend ideas than others; this results in portfolio tilts towards certain countries and sectors. Sector-wise, we find many attractive income ideas within Technology, Financials and Consumer Staples, so we are materially overweight in all three. In terms of countries, China remains our largest country exposure although we are still underweight relative to the overall market. Our three key overweight country positions are in the aforementioned Taiwan, together with Hong Kong and Russia.

Over the period we added to our investment in India's largest software services firm Tata Consultancy Services (TCS) to make it one of our leading holdings. We have been impressed by TCS's business durability and its positive long-term dividend outlook.

We made new investments in two banks: Rakyat is one of Indonesia's largest commercial banks, with a strong micro-finance franchise that puts it in a robust position to keep growing its dividend for the long term. China Merchants Bank stands out for having one of the smallest net profit declines of all Chinese banks in the first half of 2020, even managing to increase its dividend pay-out ratio; a rarity amongst financial stocks in the current COVID-19 environment.

We initiated a holding in Accton Technology, the Taiwanese manufacturer of network solutions. Accton's main products include network switches and wireless/broadband network equipment and it has demonstrated best-in-class technology and quality. This is reflected in its rising market share, stable margins and earnings that have been rising faster than most of its competitors.

Another new stock for us was Joyoung, China's largest manufacturer of domestic soya bean milk makers and a market leader in numerous other product categories. Joyoung benefits from a strong brand and excellent customer focus, all resulting in high returns on capital and attractive dividends.

We sold Hungary's OTP Bank, after the Hungarian regulators asked the company to halt dividend payments. We reduced our position in Mexico's Banorte for the same reason, the Mexican regulator mirroring many others in wanting its banks to preserve capital during the COVID-19 pandemic.

We sold our holding in Turkish energy company Tupras. Traditionally, the company has had a policy of paying large dividends but a weaker operating environment meant dividend paying ability was curtailed more than we had previously expected.

Our engagement on Environmental, Social and Governance (ESG) issues

We pay particular attention to issues that could affect the prospects for stocks within the Company's portfolio. Our investment process is ESG-Integrated, with a particular emphasis on Governance as we seek to make a direct link between pay-out ratios and governance of companies. Our analysts incorporate ESG considerations via 40 specific ESG questions for each company and we use their responses when considering stocks for inclusion within the portfolio.

One interesting outcome from our ESG-Integrated process is that we have (and have had for many years) a relatively low exposure to commodity stocks, including energy holdings. We have general concerns around dividend sustainability from energy companies, partly as the risk from their environmental exposure is something which makes it harder to be certain of these companies' business outcomes in the long term. Consequently, the portfolio exhibits a significantly better carbon footprint than the benchmark index.

Outlook

2020 has been an extremely difficult time for investors, particularly for those focusing on dividends, and the outlook is uncertain. COVID-19 remains a dampener on the prospects for Emerging Market economies, with the possible exception of North Asia. It is difficult to offer any insight into the precise timing of any post-COVID-19 recovery, but we expect the region's stock markets to be volatile for the rest of the year.

From a dividend receipts perspective, we acknowledge that the pandemic will continue to pose a challenge. Companies' near-term sales, profits and cash flow will be negatively affected, and this could impact dividends. As a reminder, Emerging Market companies generally base their dividends on a pay out ratio, so earnings cycles do matter. Nevertheless, on a long-term basis, we are confident about the balance sheet strength and long-term dividend generating ability of the stocks we hold, together with their ability to navigate their way through this most arduous period.

Market valuations have recovered from the lows we saw in March and look more neutral for the moment. Consequently, we would probably need to see some improvement in underlying earnings (and dividends) for markets to continue to progress from here.

There are positive developments; in China especially, a strong policy response helped curtail the spread of the disease and kept corporate balance sheets intact, with both economic growth and corporate earnings rebounding relatively quickly. Elsewhere, fiscal and monetary policy support will most likely continue to be seen globally although ultimately, they are not a panacea for pandemic-affected economies.

Apart from the direct economic impact from COVID-19, the pandemic has also meant many changes to how economies and businesses operate. We are mindful that we need to take this into account in our analysis of companies' dividend prospects. We have also been able to judge how different company management teams across the region responded to the crisis, whether it be in terms of dealing with customers, their own work forces, or other important stakeholders. This, in itself, has been very informative in helping us identify well-managed, strong companies, something which should be positive for our stock selection going forward. Here we are fortunate to be supported by a very strong team of analysts, in locations ranging from London to Shanghai to New York, who provide valuable insights on individual Emerging Markets companies.

Despite this year's environment in which earnings are challenged, we are confident that Emerging Markets retain their long-term appeal and we have a positive view about the long-term prospects for dividend generation from the stocks we hold. We remain disciplined investors, focused on investing in sound, sustainable businesses that have the potential to deliver income and capital returns. Our aim is that the Company should continue to have a balanced approach and a carefully managed risk profile that will deliver good returns and reward shareholders willing to invest for the long term.

Omar Negyal

Jeffrey Roskell

Isaac Thong

Investment Managers

23rd October 2020  

Principal AND EMERGING Risks

The Directors confirm that they have carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.

With the assistance of the Manager, the Board has drawn up a risk matrix, which identifies the key risks to the Company. In assessing the risks and how they can be mitigated, the Board has given particular attention to those issues that threaten the viability of the Company. These key risks fall broadly under the following categories:

• Investment

An inappropriate investment strategy, for example poor stock selection or asset allocation or foreign exchange weakness, may lead to underperformance against the Company's benchmark index and peer companies or it may lead to insufficient local currency income generation which may lead to a cut in the dividend. The Board manages these risks by diversification of investments through its 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, currency performance, liquidity reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the Investment Managers, who attend Board meetings, and reviews data which show statistical measures of the Company's risk profile.

• Strategy

If the Company's business strategy is no longer appropriate, it may lead to a lack of investor demand. This may result in the Company's shares trading at a narrower premium or a wider discount. The Board discusses these risks regularly and takes advice from the Manager and its professional advisers. An inappropriate gearing strategy may lead to suboptimal returns; poor performance if over-geared in weak markets or performance foregone if under-geared in strong markets. The Board has set a gearing range within which the Investment Managers employ the Company's gearing on a strategic basis.

• Financial

The financial risks faced by the Company include market price risk, interest rate risk, liquidity risk and credit risk. Further details are disclosed in note 22 on pages 67 to 72 of the 2020 Annual Report.

• 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 report on pages 32 to 37 of the 2020 Annual Report.

•   Operational and Cybercrime

Loss of key staff by the Manager, such as the Investment Managers, could affect the performance of the Company. Disruption to, or failure of, the Manager's accounting, dealing or payments systems or the depositary's or custodian's records could prevent accurate reporting and monitoring of the Company's financial position. This includes the risk of cybercrime and consequent potential threat to security and business continuity. Details of how the Board monitors the services provided by the Manager and its associates and the key elements designed to provide effective internal control are included in the Risk Management and Internal Control section of the Corporate Governance report on page 36 of the 2020 Annual Report. 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 Company benefits directly or indirectly from all elements of JPMorgan's Cyber Security programme. The information technology controls around the physical security of JPMorgan's data centres, security of its networks and security of its trading applications are tested by PricewaterhouseCoopers LLP and reported every six months against the AAF Standard.

• Accounting, Legal and Regulatory

In order to qualify as an investment trust, the Company must comply with Section 1158 of the Corporation Tax Act 2010 ('Section 1158'). Details of the Company's approval are given under 'Business of the Company' above. Were the Company to breach Section 1158, it would lose its investment trust status and, as a consequence, gains within the Company's portfolio could be subject to Capital Gains Tax. The Section 1158 qualification criteria are continuously 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 Prospectus Rules, Listing Rules and Disclosure, Guidance & 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, the Manager and its professional advisers to ensure compliance with the Companies Act 2006, the UKLA Prospectus Rules, Listing Rules, DTRs and the Alternative Investment Fund Managers, Directive.

• Political and Economic

Sustained underperformance of emerging markets as an asset class as a result of risks such as the imposition of restrictions on the free movement of capital and change in legislation. Currently, there are UK-related risks due to the uncertain impact of the 'Brexit' process. These risks are discussed by the Board on a regular basis.

• Environmental, Social and Governance

Underperformance as a result of environmental, social and governance risks. The Board acknowledges that there are risks associated with investment in companies which fail to conduct business in a responsible manner and, therefore, it ensures that the Manager takes account of environmental, social and governance factors as part of the investment process.

The Board considers the following as emerging risks facing the Company:

• Climate Change

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 inevitable. As detailed on page 13 of the 2020 Annual Report, ESG considerations are incorporated at the heart of the Company's investment process.

Financial returns for long-term diversified investors should not be jeopardised given the investment opportunities created by the world's transition to a low-carbon economy. The Board is also considering the threat posed by the direct impact of climate change on the operations of the Manager and other major service providers. As extreme weather events become more common, the resiliency, business continuity planning and the location strategies of our services providers will come under greater scrutiny.

• Global Pandemics

The recent emergence and spread of coronavirus (COVID-19) has raised the general risk of global pandemics. COVID-19 poses a significant risk to the Company's portfolio. At the date of this report, the virus has contributed to significant volatility in equity markets. The global reach and disruption to markets of this pandemic is unprecedented, so we have no direct comparators from which to learn. However, seismic events in the past have also been the catalyst for large market falls and huge volatility. Time after time, markets  have recovered, albeit over varying and sometimes extended time periods, and so we do have an expectation that the portfolio's holdings will not suffer a material long-term impact and will recover once containment measures ease. Should the virus become more virulent than is currently the case, it may present risks to the operations of the Company, its Manager and other major service providers.

Should efforts to control a pandemic prove ineffectual or meet with substantial levels of public opposition, there is the risk of social disorder arising at a local, national or international level. Even limited or localised societal breakdown may threaten both the ability of the Company to operate, the ability of investors to transact in the Company's securities and ultimately the ability of the Company to pursue its investment objective and purpose.

Transactions with the Manager and related parties

Full details of transactions with the manager and related parties can be found in note 20 on pages 66 of the 2020 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 regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'. Under Company law the Directors must not approve the financial statements unless they are satisfied that, taken as a whole, the annual report and financial statements are fair, balanced and understandable, provide the information necessary for shareholders to assess the Company's performance, business model and strategy and that they give a true and fair view of the state of affairs of the Company and of the total return or loss of the Company for that period. 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 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.

The Directors are responsible for keeping proper 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 to enable them to ensure that the financial statements 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 financial statements are published on the www.jpmglobalemergingmarketsincome.co.uk website, 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 work carried out by the auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the auditor accepts no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. The financial statements are prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.

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

Each of the Directors, whose names and functions are listed on page 29 of the 2020 Annual Report confirm that, to the best of their knowledge:

• the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and return of the Company; and

• the Strategic 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 Board confirms that it is satisfied that the annual report and financial statements 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 Fromson

Chairman

23rd October 2020

statement of comprehensive income

for the year ended 31st July 2020

	2020				2019
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains on investments held at
fair value through profit or loss	-	(50,303)	(50,303)	-	33,262	33,262
Net foreign currency gains/(losses)	-	1,516	1,516	-	(1,746)	(1,746)
Income from investments	16,308	-	16,308	22,199	-	22,199
Interest receivable and similar income	66	-	66	75	-	75
Gross return/(loss)	16,374	(48,787)	(32,413)	22,274	31,516	53,790
Management fee	(1,154)	(2,694)	(3,848)	(1,257)	(2,934)	(4,191)
Other administrative expenses	(649)	-	(649)	(725)	-	(725)
Net return/(loss) before finance costs
and taxation	14,571	(51,481)	(36,910)	20,292	28,582	48,874
Finance costs	(270)	(630)	(900)	(279)	(651)	(930)
Net return/(loss) before taxation	14,301	(52,111)	(37,810)	20,013	27,931	47,944
Taxation	(1,584)	-	(1,584)	(2,440)	195	(2,245)
Net return/(loss) after taxation	12,717	(52,111)	(39,394)	17,573	28,126	45,699
Return/(loss) per share (note 2)	4.28p	(17.53)p	(13.25)p	5.92p	9.47p	15.39p

statement of changes in equity

for the year ended 31st July 2020

	Called up		Capital
	share	Share	redemption	Other	Capital	Revenue
	capital	premium	reserve	reserve1,2	reserves	reserve2	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 31st July 2018	2,968	221,988	13	101,113	59,096	14,336	399,514
Issue of new ordinary shares	5	594	-	-	-	-	599
Net return	-	-	-	-	28,126	17,573	45,699
Dividends paid in the year (note 3)	-	-	-	(508)	-	(14,336)	(14,844)
At 31st July 2019	2,973	222,582	13	100,605	87,222	17,573	430,968
Net (loss)/return	-	-	-	-	(52,111)	12,717	(39,394)
Dividends paid in the year (note 3)	-	-	-	-	-	(15,161)	(15,161)
At 31st July 2020	2,973	222,582	13	100,605	35,111	15,129	376,413

¹ The balance of the share premium was cancelled on 20th October 2010 and transferred to the 'other reserve'.

² These reserves form the distributable reserve of the Company and may be used to fund distributions to investors.

statement of financial position

at 31st July 2020

	2020	2019
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	402,288	456,203
Current assets
Debtors	1,768	1,364
Cash and cash equivalents	6,530	6,314
	8,298	7,678
Current liabilities
Creditors: amounts falling due within one year	(18,935)	(245)
Net current assets	(10,637)	7,433
Total assets less current liabilities	391,651	463,636
Creditors: amounts falling due after more than one year	(15,238)	(32,668)
Net assets	376,413	430,968
Capital and reserves
Called up share capital	2,973	2,973
Share premium	222,582	222,582
Capital redemption reserve	13	13
Other reserve	100,605	100,605
Capital reserves	35,111	87,222
Revenue reserve	15,129	17,573
Total shareholders' funds	376,413	430,968
Net asset value per share	126.6p	145.0p

statement of cash flows

For the year ended 31st July 2020

	2020	2019
	£'000	£'000
Net cash outflow from operations before dividends and interest	(5,044)	(4,575)
Dividends received	15,008	20,832
Interest received	55	69
Overseas tax recovered	2	-
Interest paid	(905)	(880)
Net cash inflow from operating activities	9,116	15,446
Purchases of investments	(100,666)	(59,570)
Sales of investments	107,077	60,316
Settlement of forward currency contracts	(33)	48
Net cash inflow from investing activities	6,378	794
Dividends paid	(15,161)	(14,844)
Issue of new ordinary shares	-	599
Net cash outflow from financing activities	(15,161)	(14,245)
Increase in cash and cash equivalents	333	1,995
Cash and cash equivalents at start of year	6,314	4,275
Unrealised (losses)/gains on foreign currency cash and cash equivalents1	(117)	44
Cash and cash equivalents at end of year	6,530	6,314
Increase in cash and cash equivalents	333	1,995
Cash and cash equivalents consist of:
Cash and short term deposits	5,673	2,185
Cash held in JPMorgan US Dollar Liquidity Fund	857	4,129
Total	6,530	6,314

Notes to the financial statements

for the year ended 31st July 2019

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 October 2019.

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

The financial statements have been prepared on a going concern basis. The disclosures on going concern on page 38 of the Audit and Risk Committee Report within the 2020 Annual Report form part of these financial statements.

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

2.  Return per share

	2020	2019
	£'000	£'000
Revenue return	12,717	17,573
Capital (loss)/return	(52,111)	28,126
Total (loss)/return	(39,394)	45,699
Weighted average number of shares in issue during the year	297,240,161	296,892,079
Revenue return per share	4.28p	5.92p
Capital (loss)/return per share	(17.53)p	9.47p
Total (loss)/return per share	(13.25)p	15.39p

3.  Dividends

  Dividends paid and declared

	2020	2019
	£'000	£'000
Dividend paid
2019 Fourth interim dividend paid of 2.1p (2018: 2.0p)	6,242	5,936
First interim dividend paid of 1.0p (2019: 1.0p)	2,973	2,968
Second interim dividend paid of 1.0p (2019: 1.0p)	2,973	2,968
Third interim dividend paid of 1.0p (2019: 1.0p)	2,973	2,972
Total dividends paid in the year	15,161	14,844
Dividend declared
Fourth interim dividend declared of 2.1p (2019: 2.1p)	6,242	6,242

4.  Net asset value per share

	2020	2019
Net assets (£'000)	376,413	430,968
Number of shares in issue	297,240,161	297,240,161
Net asset value per share	126.6p	145.0p

5.   Status of announcement

  2019 Financial Information

  The figures and financial information for 2019 are extracted from the Annual Report and Accounts for the year ended 31st July 2019 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.

  2020 Financial Information

  The figures and financial information for 2020 are extracted from the Annual Report and Accounts for the year ended 31st July 2020 and do not constitute the statutory accounts for that year. The Annual Report and Accounts includes 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 Registrar of Companies in due course.

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.

JPMORGAN FUNDS LIMITED  

23rd October 2020

For further information please contact:

Divya Amin

For and on behalf of

JPMorgan Funds Limited

020 7742 4000

ENDS

A copy of the 2020 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 Annual Report will also be available on the Company's website at www.jpmorganglobalemergingmarkets.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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