Annual Financial Report

RNS Number : 8252A

JPMorgan Emerging Mkts Invest Trust

01 October 2020

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN EMERGING MARKETS INVESTMENT TRUST PLC

(the 'Company')

FINAL RESULTS FOR THE YEAR ENDED 30TH JUNE 2020

Legal Entity Identifier : 5493001VPQDYH1SSSR77

Information disclosed in accordance with the DTR 4.1.3

CHAIRMAN'S STATEMENT

The Directors of the Company set three key objectives for the Company for the financial year to 30th June 2020. These were to continue the strong record of investment performance, to reduce the discount of the Company's share price to the net asset value and to broaden the shareholder base. Whilst investment performance has remained above benchmark and we have made progress in broadening the shareholder base to include more retail investors and wealth managers, the discount of the Company's share price to net asset value widened to 8.7% at the end of the financial year from 6.9% the previous year as COVID-19 caused a general widening of investment trust discounts over the period. However, the average discount for the year just ended was 8.3% against 10.6% the previous year, indicating that for the year as a whole there was an overall improvement.

Investment Performance

Investment performance in the year to 30th June 2020 was again positive in both absolute and relative terms. The return to shareholders was+0.7% over the year and the Company's return on net assets was +2.7%. This represents outperformance of the benchmark index (the MSCI Emerging Markets index with net dividends reinvested, in sterling terms) which returned -0.5%. Those return figures may seem unremarkable on the face of it, but in the second half of our financial year the world, and global equity markets, faced the almost unprecedented challenges of the COVID-19 pandemic. For the most part, markets appear to have shrugged off the economic headwinds as unprecedented low interest rates have encouraged investors back into the stock market, but challenges will remain for some time. In his report which follows, Austin Forey illustrates how the pandemic has accelerated trends that were already in place in emerging markets and it is encouraging that a number of positions had already been taken in the portfolio in anticipation of these trends.

The outperformance of our benchmark index in such volatile markets demonstrates once again the integrity and strength of Austin and his team's process of investing in companies with sustainable business models and responsible managements. These companies tend to have more enduring growth and greater resilience through challenging times, which has helped underpin the strong performance of the Company. Performance over the longer term remains very strong and is well ahead of benchmark over three, five and ten years. It is very pleasing that this outperformance has been recognised by the Company winning a number of prestigious awards such as the Investment Week Best Emerging Markets Trust 2019, as well as awards from AJ Bell, Citywire, Money Observer and Moneywise. The Investment Manager's Report provides more detail on the investment performance and how it was achieved.

Discount

The Board regularly considers the merits of buying back shares in order to manage the level and volatility of the discount and will buy back shares if the discount is out of line with the peer group and markets are orderly. 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.

The discount (calculated using the cum-income net asset value, on which the Board's share buyback programme is operated) ranged between 4.3% and 15.9%, averaging 8.3% through the year. The unusually wide discount level of 15.9% is not indicative of usual levels and was the result of the extreme volatility during the COVID-19 sell off in March 2020, in line with discount movements across the investment trust sector. The Board monitors the discount closely and, although the discount closed at a slightly wider level than the previous year end, the shares have continued to trade at a lower discount than the historic average and at a narrower level than the Company's largest peers. At the time of writing the Company's shares are trading on a discount of 9.5%, which is in line with the general widening of discounts in the investment trust industry over recent worries of a second wave of COVID-19.

Shareholder Base

The Directors have continued to make progress on their objective to broaden the shareholder base to include more wealth managers and retail investors and the share register is now significantly more diversified than in the past. The Company's excellent long term investment performance record has enabled both J.P.Morgan and the Company's broker Stifel to successfully promote the Company to attract new investors.

Revenue and Dividends

The Board has been consistent in communicating to shareholders that the Company is managed to produce total return rather than any particular level of dividend and 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 COVID-19 pandemic has led to a number of investee companies either cutting or cancelling their dividends. As a result, for the first year since 2014, the revenue return per share decreased in the financial year with the revenue return per share for the year falling to 11.74 pence (from 14.85 pence in 2019).

However, one of the advantages of being an investment trust rather than an open ended fund is the ability to use the Company's revenue reserve to smooth dividends paid to shareholders from year to year. This has allowed the Board to increase this year's total dividend by 1.4%, when most open ended emerging markets funds have reduced their distributions. The Board proposes a final dividend of 9.0 pence per share, subject to shareholder approval at the forthcoming Annual General Meeting ('AGM'). Together with the interim dividend of 5.2 pence paid in April, this will increase the total dividend for the year from 14.0 pence last year to 14.2 pence.

Environment, Social and Governance ('ESG') Issues

Sustainable investing has always been at the heart of the team's investment philosophy and ESG considerations are core to how it selects stocks in emerging markets companies. In more recent years, the integration of ESG considerations have become formalised in the investment process. There is an ever increasing focus on ESG and sustainable investing and for the first time this year, this annual report includes a separate report which provides much more comprehensive information on these issues and how they have been developed and integrated into the Manager's investment process for many years.

Corporate Governance

The AIC Code of Corporate Governance for investment companies was revised and reissued in 2019, following on from the revision of the FRC UK Corporate Governance Code in 2018. This annual report reflects the new disclosure requirements and in particular readers will note new statements on the Company's purpose, strategy and values. There is also a statement on how the Directors have carried out their duty to promote the success of the Company, in accordance with the Companies Act. We hope that readers find this information, together with the more comprehensive information on ESG issues, helpful.

The Board

Helena Coles was appointed to the Board on 1st September 2020. Helena, who is a Chartered Financial Analyst, has over 20 years' fund management experience in Asian and emerging markets equities and has expertise in investment trusts and environmental, social and governance issues. She is currently the independent investment adviser to the Joseph Rowntree Charitable Trust and was a co-founder and board member of Rexiter Capital Management, a specialist emerging markets and Asian asset management company. She has also worked with Fidelity International's Sustainable Investing team, at the Bank of England's Prudential Regulatory Authority and as a consultant to Edison Investment Research. I have no doubt that, with her considerable skills and experience, Helena will be a great asset to the Board of the Company.

I am pleased to confirm that the composition of the Board now meets the Hampton-Alexander recommendation of having a minimum of 33% female representation.

The Manager

The Board monitors the performance of our Manager through the 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.

 

Share Split

As a consequence of the Company's strong performance, the share price has risen sharply in recent years. In fact, over the last ten years it has almost doubled and, since its launch in 1991, it has risen from £1.00 to £9.94 at the year end. Whilst this has been very good for our existing shareholders, the Board believes that the high share price is unhelpful for those investing smaller amounts, monthly savers and dividend re- investment programmes and may deter new investors. Therefore it is proposing a share split, to sub-divide the shares on a 10 for 1 basis; following the share split each shareholder will hold ten new ordinary shares for each share held on the Record Date immediately prior to the share split. We would like to assure existing shareholders that the splitting of the shares will not affect the overall value of their holdings in the Company as the reduction in the price per share will be offset by a commensurate increase in the number of shares they hold. By way of example, taking the price as at 30th June 2020 of 994.0p per share, following the sub-division each holder of one ordinary share would receive ten new shares which would be priced at 99.4p per share immediately after the share split.

Shareholders will have the opportunity to vote on this proposal at the forthcoming AGM and more details on this and the format of this year's AGM are set out in the annual report.

Investment Restrictions and Guidelines

In April this year, the Board announced that, in response to the consequences for investment markets of the COVID-19 pandemic, it had reviewed the Company's investment restrictions and guidelines and decided to add to the existing investment restriction "No more than 50% of the Company's assets may be invested in one region" the following clause as a temporary measure: "or 10% above the equivalent benchmark weighting, whichever is the greater". The change did not constitute a material change of the Company's Investment Policy but was intended to allow the Investment Manager temporarily to continue to hold and invest the Company's assets in regions which had outperformed in the crisis, and that were expected to continue to do so, in accordance with the Company's Investment Objective. The change also preserved the relevance of the current benchmark as a measure for performance appraisal. We advised that the temporary change would be kept under review and, in consultation with the Manager, the Board has decided to make this change permanent and not to make any further change at this point. As explained in the announcement made in April, and confirmed by our corporate broker Stifel, this does not represent a material change to the Company's investment policy and therefore it is not necessary to propose a resolution for the approval of the Company's shareholders at the forthcoming AGM.

Continuation of the Company

As shareholders will be aware, every three years the Company offers shareholders a Continuation Vote to determine whether the Company should continue in existence. Shareholders will be asked to vote on this in a resolution ahead of the forthcoming AGM in November, as COVID-19 restrictions mean that shareholders will not be able to attend the AGM in person. The Board believes strongly that the Company should continue and it urges shareholders to support the Company by voting in favour of the Company's continuation. The Board recommends that shareholders refer to their investment platforms or visit the website of the Association of Investment Companies if they require more details on how to vote their shares.

AGM

This year's AGM will be held at J.P.Morgan's office at 60 Victoria Embankment, London EC4Y 0JP on Thursday, 5th November 2020 at 3.00 p.m. Due to the ongoing situation surrounding COVID-19 and Government advice, regretfully the Board had to revise the format of this year's AGM. Only the formal business of the AGM will be considered and there will be no presentation from the Investment Manager. The Government has, for the time being, placed restrictions on public gatherings and therefore shareholders will not be allowed to attend the AGM in person. Anyone seeking to attend the meeting will be refused entry.

However, in advance of the meeting, we will be uploading to the Company's website a presentation from Austin Forey, reviewing the past year and giving his view on the outlook for emerging markets for the current year. Shareholders are encouraged to raise any questions on the presentation, or on the business to be conducted at the AGM, with the Company Secretary in advance of the AGM via the 'Ask a Question' link on the Company's website. Any questions received will be replied to by the Company Secretary.

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.

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

The extent of any sustained global economic recovery is currently unclear as the possibility of a second wave of COVID-19 is threatening a number of countries and industries. Geopolitical developments, such as rising US-Sino tensions and the impact on global trade, and the outcome of the US election, are also a cause for concern. However, in this environment it is likely that global interest rates will remain at historically low levels for some time which will be supportive of equities. The Manager's investment process concentrates on investing in companies which he is confident can deliver sustainable growth and create value in these uncertain times. There may be some short-term periods when this strategy underperforms but the Directors firmly believe that it will reward investors over the longer term.

Sarah Arkle

Chairman

30th September 2020

INVESTMENT MANAGER'S REPORT

Objectives & Outcomes

Purpose

The primary purpose of the Company has always been to achieve superior investment returns for its shareholders. The statement in the annual report sets out not only this purpose, but the most important principles that have guided us in pursuit of this objective. Together, these form a natural agenda for this commentary and overview of the past financial year.

Investment returns

At first glance, returns for shareholders during the latest fiscal year to 30th June 2020 were nothing to write home about: the total return on net assets was 2.7% over the year, while the total return on the share price was only 0.7%, because the discount to NAV widened during the year. But I hope shareholders will see these numbers in a broader context. Not only was this a year in which the asset class as a whole delivered a marginally negative return (as measured by our benchmark index, which declined by 0.5%), it was and will no doubt be remembered as the year of the pandemic. Given everything that has transpired in the last few months, it is good to be able to report even a modest gain in value for the Company's shareholders. Even though this was anything but an average year, the underlying value added to the Company by active management, measuring the portfolio return before costs against the index return, was 4.0%; this is in fact almost exactly the same as the average annual "manager contribution" over the last 12 years.

Our Approach Guiding principles

In past reports I have tried to explain not just how we approach investment, but the rationale behind our process. This year, we have expanded this to a set of guiding principles which I hope will offer shareholders not just the comfort of seeing that the portfolio "does what it says on the tin", but also that it will continue to do so. These guiding principles are intended as enduring statements of basic investment beliefs.

First and foremost is we aim to take a long term approach to investing. This brings two simple but powerful effects for the portfolio. First, if we can find businesses whose value compounds in a sustained way, they will eventually have a big impact on the overall value of the portfolio; nothing is as powerful as compounding over long periods. Second, such an approach minimizes transaction costs and thus helps overall returns to shareholders; the long term effects of this should not be underestimated.

In the past year, we changed about 10% of the portfolio, as can be seen in the statistics in the annual report: these show that we made purchases of £134m on a portfolio or £1.3bn. Another way of thinking about this is that our average holding period for investments is roughly 10 years, which I hope supports our claim to be taking a long term approach.

Our second guiding principle is to use fundamental research to manage the portfolio actively, something we have been doing now for almost three decades already. Yet in that time, our research capability has developed to something entirely different from where we began. Twenty years ago, I was both a portfolio manager and a researcher of ideas, but as the asset class expanded and became more complex, it was clear that we would need more resources, and so almost fifteen years ago we started building a team of analysts dedicated solely to researching companies in emerging markets. Today that team numbers over 40 analysts: it's a very diverse group of people, reflecting the diversity of investment options we see before us. Most importantly, this diverse group works with a common research framework, which allows us to select the most suitable ideas for the portfolio, no matter where they are found. The core of our research process has always remained the same, and focuses on understanding the basic economics, duration and governance of any company we look at. But our approach has also evolved as appropriate: in the last decade we have introduced new elements into our research to better capture the environmental and social risks faced by companies.

As for managing the portfolio actively, this should not of course be understood to mean that we are constantly trading shares. Rather, shareholders should understand that we pay little attention to the index when constructing the portfolio and have always been prepared to take positions which differ significantly from the benchmark, both at the individual stock level, and when seen in aggregate. We are really only interested in particular kinds of companies and we find them most often in certain industries, as I explain below when talking about sustainability. The portfolio reflects this.

Our next principle is to focus on stock selection above all. More than anything else, we are trying to find the best individual companies to invest in. Of course, we think about the context in which they operate, the currencies to which they are exposed and other macro-economic effects and risks. But we have never set out to be "overweight" or "underweight" in a particular country or industry, we have always just pursued the best investments, wherever we could find them. This has led us to opportunities that a more "top down" approach might well have missed. In the last few years we have invested in three companies, two based in Argentina and one whose principal operations base is in Belorussia, and between them these investments have added significant value to the portfolio. It is very unlikely, had we been thinking at a country level, that we would ever have found these opportunities; more likely, we would have dismissed both countries out of hand.

We focus on stock selection for three reasons. First, and most importantly, it's where we have added value in the past and where we think we can do so in the future; it's what our research process is designed for and it's what our analysts do. Second, it gives us far more choices than a process led by selecting countries as the primary decisions factor; as an investor, the more things you have to choose from, the better. And third, a focus on individual company investments leads us naturally to think a lot about what makes any company stand out, and the stocks we tend to like the most, and keep the longest, are those where we remain most convinced of the company's competitive strengths and of its ability to create value with those strengths. Why does this matter? Because if we can find opportunities that are very company-specific, they are intrinsically diversified, because they rest on factors which other companies cannot replicate. The more each investment in the portfolio is driven by idiosyncratic factors, the more truly diversified the portfolio is in the long term.

Our last two principles are less to do with decision making and address instead our broader conduct as investors of capital on behalf of the Company's shareholders. We set out to act as a responsible and engaged shareholder of the companies that we have invested in on shareholders' behalf. In a way this seems so obvious that it hardly needs saying: we conduct thousands of meetings with companies every year and, over time, dozens of meetings with the same individual companies which may stay in the portfolio for years and years. These are not one-way discussions - we offer companies our opinions and our views, especially on issues like capital allocation and governance which lie beyond the purely operational remit of management. Always, we present arguments with the intention of helping a company extend its competitive duration and enhance its long term value. We always vote the shares that the portfolio holds and information on our voting over the last year is shown in the annual report.

We see a responsibility not just to challenge and question management teams, but to engage where we see scope for improvement, whether it is in something as simple as the composition of the board or the transparency of reporting, or in a more complex area. Sometimes we simply offer a broader perspective, because we look across many countries and many industries. But the essential thing is to view ownership of a company's shares as an activity in its own right; active management does not mean trading the stocks in the portfolio incessantly - it is about sustained engagement with leading companies over many years, in pursuit of better outcomes for all. We have always done this, but we also look for ways to improve what we do, and one enhancement to our research process that we have introduced in the last year has been the development of a "materiality framework", identifying the most important ESG factors in over 50 industry categories, as chosen by our research experts. This not only allows a far sharper focus on how companies are performing in the areas that are most significant for their particular industry, it also helps us drive targeted engagement on the most important issues for any single company. I look forward to reporting on this in more detail in the future as we accumulate more experience in applying this framework.

Lastly, we want to use the benefits of the closed-end fund structure for shareholders. What does this mean in practice? Primarily, we have been able to make investments in some smaller companies, where the liquidity of the shares would have been inappropriate in a fund offering daily subscriptions and redemptions. Shareholders should know, however, that we have done this selectively. These investments have never made up a large part of the portfolio, but they have added value; and of course if they are really successful investments, then over time those companies become larger and their shares more liquid. One of our largest investments today, HDFC, was a $750m company when we first invested in it in 1998 and not at all easy to buy. Today, that company's shares typically trade $100m in a day and its market value is over USD 40bn; this is an admittedly extreme example of why we have been prepared to take liquidity risk in specific outstanding investments, something that the closed fund structure of an investment trust makes possible.

The year and the portfolio

The past year

PERFORMANCE ATTRIBUTION

YEAR ENDED 30TH JUNE 2020

%		%
Contributions to total returns
Benchmark return		-0.5
Asset allocation	-0.2
Stock selection	4.2
Currency effect	-0.2
Net cash	0.2
Investment Manager contribution		4.0
Portfolio return		3.5
Management fee and expenses	-1.0
Share buybacks	0.2
Return on net assetsA		2.7
Return to shareholdersA		0.7

Source: JPMAM/Morningstar.

All figures are on a total return basis.

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

^A Alternative Performance Measure ('APM').

A glossary of terms and APMs is provided in the annual report.

It has, in that most clichéd of footballing clichés, been a year of two halves: before the pandemic; and then the pandemic. Everything altered, and yet in some ways, established trends just accelerated. Until late February, markets paid little attention to the virus that was already spreading slowly outside China. But that all changed suddenly and emerging stock markets, like all others, suffered sharp declines and the most severe market panic since the financial crisis of 2008-09. Since the end of March, they have also staged a gradual recovery, to the point that, as I write, the asset class has more or less recovered to the level at which it started the year, in sterling terms. This may seem a surprising outcome, given the damage inflicted on the global economy by the pandemic and the ensuing lockdowns and restrictions on economic activity. But the general trend masks some very divergent specific outcomes. Existing trends in e-commerce, and other online services, have seen accelerated growth and some companies in these industries have seen their share prices reach new highs throughout the last few months. In more traditional industries, there have been plenty of stocks that have some way to go simply to recover recent losses.

Corporate trends and the portfolio

Recent outcomes for emerging equity markets have been heavily influenced by the way countries have coped with the pandemic, and how quickly they have been able to return towards normality; this explains in part why China has been one of the best performing markets in the last six months, not just among emerging markets, but in a global context. But, although it may seem hard to believe right now, the pandemic will pass and economic fundamentals and corporate skill will re-emerge as the most important determinants of long term investment outcomes.

 

And that leads to an important and, I think, very encouraging trend in emerging markets: they are becoming more like developed markets. What do I mean by this? Not that they have achieved economic convergence; rather, that value creation in the corporate sector is being strongly driven by very similar factors in both areas. Digitalisation, the development of internet-based business models, the creation of intangible value rather than reliance on physical assets and large amounts of investment in fixed assets - these are far more widely seen in emerging markets today than in the past, as, as can be seen simply by looking at the trust's ten largest investments.

In fact, the majority of the portfolio is invested in sectors which broadly fit this characterisation - software services, internet services, gaming, consumer brands, even stock exchanges. This is important because companies that do not have to invest large amounts of capital tend to generate higher returns on capital, require less leverage, and ultimately generate more cash for shareholders, all highly desirable qualities in an equity investment. Moreover, the value added by intellectual property is highly specific to the company that created it, and less easily replicated. By contrast, businesses which have low value-added and are capital-dependent will always, in my view, see their returns trend towards the price of capital, which today is lower than ever. And that is why the portfolio today concentrates heavily on the former and avoids the latter. It has no exposure to capital intensive industries like basic commodities, real estate, utilities or heavy industry. As a result, the Company's portfolio is also made up of businesses whose returns on capital are significantly above the average emerging market company, something that is unlikely to change.

Looking forwards

A Sustainable future

Much more attention is now being paid to the notion of sustainability in the practice of asset management. In fact, the word "sustainability" has acquired a specific and, one might argue, narrow meaning in this context. Given both our long term focus and our long holding periods for investments, we have always been interested in sustainability, defined in the broadest way, which is closely tied both to competitive advantage and strong economics, as well as to responsible corporate behaviour, and our investment approach has always incorporated this. There is no doubt, however, that the focus on corporate responsibility in general, and climate change in particular, is changing the criteria for successful long term value creation in the corporate world, making effective consideration of sustainability factors all the more essential. For the best companies, great opportunities abound; for the worst, irrelevance and extinction lie ahead.

The Company's portfolio naturally tilts towards industries with a carbon footprint that is better than average, and this is reflected in some of the data we show on the portfolio in the annual report. But in a more detailed way, we now regularly challenge and interrogate companies on issues that are really specific to what they do - and that could be the way that an alcohol producer markets its products to consumers, or the way a semiconductor company is increasing its use of renewable energy sources. As a really granular example, we recently engaged with a pharmacy company to discuss its use of inappropriate third-party advertising from a product manufacturer, to understand how a mistake had been made, what had been done about it and how repetitions would be avoided in the future. This is a typical example of the detailed discussions that we have with companies across a wide range of industries and geographies.

We are not looking for average companies and average solutions will not be enough to produce sustainably superior outcomes. The best companies understand this and understand also that the corporate sector has to play a major role in an enormous economic transition that is needed to secure a sustainable future for all. Companies are often portrayed as the villains in the drama and some of them deserve this characterisation. But without the innovation, the investments and the ambition of the corporate sector, in emerging markets and elsewhere, a sustainable future will be hard to achieve. I remain optimistic both about the contribution that companies can make, and about the investment opportunities this will bring; and therefore I remain optimistic about the prospects of the Company.

Austin Forey

Investment Manager

30th September 2020

 

PRINCIPAL 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. The risks identified, including emerging risks, and the ways in which they are managed or mitigated are summarised as follows. The impact of the COVID-19 pandemic is inherent in all of these risks and is discussed by the Board on a regular basis.

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 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. 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 Investment Manager, who attends 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 the investment manager or several members of the investment management team could result in a short-term deterioration in investment performance. 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 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. Currently, there are broader political risks and specific risks, such as rising US-Sino tensions and the impact on global trade, the uncertain outcome of the 'Brexit' process which may impact the value of sterling and the COVID-19 pandemic. 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. 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 securityand 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 20(c) in the annual report for further details on the responsibilities of the Depositary. 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 within 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. 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.

· Change of Corporate Control of the Manager

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 24. 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. 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 in 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 20 in the annual report.

TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES

Details of the management contract are set out in the Directors' Report in the annual report. The management fee payable to the Manager for the year was £10,770,000 (2019: £11,054,000) of which £nil (2019: £nil) was outstanding at the year end.

During the year £64,000 (2019: £79,000), including VAT, was payable to the Manager for the administration of savings scheme products, of which £nil (2019: £36,000) was outstanding at the year end.

Safe custody fees amounting to £490,000 (2019: £529,000) were payable during the year to JPMorgan Chase N.A. of which £100,000 (2019: £138,000) 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 £9,000 (2019: £3,000) of which £nil (2019: £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 £12.8 million (2019: £0.6 million). Interest amounting to £134,000 (2019: £183,000) was received during the year of which £nil (2019: £1,000) was outstanding at the year end.

Handling charges on dealing transactions amounting to £34,000 (2019: £44,000) were payable to JPMorgan Chase N.A. during the year of which £16,000 (2019: £16,000) was outstanding at the year end.

At the year end, total cash of £747,000 (2019: £5,327,000) was held with JPMorgan Chase. A net amount of interest of £2,000 (2019: £4,000) was receivable by the Company during the year from JPMorgan Chase of which £nil (2019: £nil) was outstanding at the year end.

 

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 www.jpmemergingmarkets.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 auditors accept no responsibility for any changes that have occurred to the Annual Report since they were initially presented on the website. The Annual Report is 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 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 performance, business model and strategy.

For and on behalf of the Board

Sarah Arkle

Chairman

30th September 2020

 

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30TH JUNE 2020

Notes			2020			2019
		Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains on investments held at fair value through profit or loss		-	23,660	23,660	-	141,133	141,133
Net foreign currency gains		-	292	292	-	100	100
Income from investments		20,247	-	20,247	24,975	-	24,975
Interest receivable		136	-	136	187	-	187
Gross return		20,383	23,952	44,335	25,162	141,233	166,395
Management fee		(3,231)	(7,539)	(10,770)	(3,316)	(7,738)	(11,054)
Other administrative expenses		(1,324)	-	(1,324)	(1,305)	-	(1,305)
Net return before taxation		15,828	16,413	32,241	20,541	133,495	154,036
Taxation		(1,651)	-	(1,651)	(2,269)	-	(2,269)
Net return after taxation		14,177	16,413	30,590	18,272	133,495	151,767
Return per share (note 2)		11.74p	13.59p	25.33p	14.85p	108.50p	123.35p

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30TH JUNE 2020

	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 2018	33,091	173,657	1,665	69,939	889,474	29,029	1,196,855
Repurchase of shares into Treasury	-	-	-	-	(13,261)	-	(13,261)
Net return	-	-	-	-	133,495	18,272	151,767
Dividends paid in the year (note 3)	-	-	-	-	-	(21,592)	(21,592)
At 30th June 2019	33,091	173,657	1,665	69,939	1,009,708	25,709	1,313,769
Repurchase of shares into Treasury	-	-	-	-	(23,293)	-	(23,293)
Net return	-	-	-	-	16,413	14,177	30,590
Dividends paid in the year (note 3)	-	-	-	-	-	(17,151)	(17,151)
At 30th June 2020	33,091	173,657	1,665	69,939	1,002,828	22,735	1,303,915

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 2020

		2020 £'000	2019 £'000
Fixed assets		1,288,907	1,305,035
Investments held at fair value through profit or loss
Current assets
Debtors		1,703	3,102
Cash and cash equivalent		13,534	5,947

Current liabilities		15,237	9,049
Creditors: amounts falling due within one year		(229)	(315)
Net current assets		15,008	8,734
Total assets less current liabilities		1,303,915	1,313,769
Net assets		1,303,915	1,313,769
Capital and reserves
Called up share capital		33,091	33,091
Share premium		173,657	173,657
Capital redemption reserve		1,665	1,665
Other reserve		69,939	69,939
Capital reserves		1,002,828	1,009,708
Revenue reserve		22,735	25,709
Total shareholders' funds		1,303,915	1,313,769
Net asset value per share (note 4)		1,089.3p	1,075.8p

 

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30TH JUNE 2020

		2020 £'000	2019 £'000
Net cash outflow from operations before dividends and interest1		(12,390)	(12,590)
Dividends received		19,859	24,552
Interest received		138	187
Overseas tax recovered		91	-
Net cash inflow from operating activities		7,698	12,149
Purchases of investments		(133,905)	(59,437)
Sales of investments		173,768	86,841
Settlement of forward currency contracts		257	220
Net cash inflow from investing activities		40,120	27,624
Repurchase of shares into Treasury		(23,293)	(13,261)
Dividend paid		(17,151)	(21,592)
Net cash outflow from financing activities		(40,444)	(34,853)
Increase in cash and cash equivalents		7,374	4,920
Cash and cash equivalents at start of year		5,947	1,023
Unrealised gain on foreign currency cash and cash equivalents1		213	4
Cash and cash equivalents at end of year		13,534	5,947
Increase in cash and cash equivalents		7,374	4,920
Cash and cash equivalents consist of:
Cash and short term deposits		747	5,327
Cash held in JPMorgan US Dollar Liquidity Fund		12,787	620
Total		13,534	5,947

¹ The unrealised exchange gain on the JPMorgan US Dollar Liquidity Fund in the comparative column has been moved from the initial "Net cash outflow from operations" total to be disclosed separately as the "unrealised gain on foreign currency cash and cash equivalents".
 

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30TH JUNE 2020

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 39 of the Directors' Report in the 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 £'000	2019 £'000
Revenue return	14,177	18,272
Capital return	16,413	133,495
Total return	30,590	151,767
Weighted average number of shares in issue during the year	120,794,216	123,040,936
Revenue return per share	11.74p	14.85p
Capital return per share	13.59p	108.50p
Total return per share	25.33p	123.35p

3.  Dividends

(a)  Dividends paid and proposed

	2020 £'000	2019 £'000
Dividends paid
2019 final dividend of 9.0p (2018: 12.5p) per share	10,895	15,452
2020 interim dividend of 5.2p (2019: 5.0p) per share	6,256	6,140
Total dividends paid in the year	17,151	21,592
Dividend proposed	10,773	10,991
2020 final dividend proposed of 9.0p (2019: 9.0p) per share

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 2020 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 2021.

(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 £14,177,000 (2019: £18,272,000).
The revenue reserve after payment of the final dividend will amount to £11,962,000 (2019: £14,814,000).

	2020 £'000	2019 £'000
2020 interim dividend of 5.2p (2019: 5.0p) per share	6,256	6,140
2020 final dividend proposed of 9.0p (2019: 9.0p) per share	10,773	10,991
	17,029	17,131

4.  Net asset value per share

2020 £'000

2019 £'000

Net assets (£'000)	1,303,915	1,313,769
Number of shares in issue	119,705,240	122,119,236
Net asset value per share	1,089.3p	1,075.8p

5.  Status of results announcement

2019 Financial Information

The figures and financial information for 2019 are extracted from the Annual Report and Financial Statements for the year ended 30th June 2019 and do not constitute the statutory accounts for the year. The Annual Report and Financial Statements include 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 published Annual Report and Financial Statements for the year ended 30th June 2020 and do not constitute the statutory accounts for that year. The Annual Report and Financial Statements include 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. The Annual Report and Financial Statements will be delivered to the Register 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

ENDS

A copy of the annual report will shortly be submitted to the National Storage Mechanism and will be available f or inspection at   www.fca.org.uk

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

 

 

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