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JPMorgan JF ASEAN Equity Off-Shore Fund: A market to consider
August 14, 2012

In this article, we have analyzed a unique fund to Indian investors that invests in companies having presence in ASEAN economies.


Author : iFAST Research Team



 JPMorgan JF ASEAN Equity Off-Shore Fund: A market to consider

Key Points

  • JPMorgan JF ASEAN Equity Off-Shore Fund is a feeder fund that invests in JPMorgan Funds - JF ASEAN Equity Fund
  • The parent fund invests in companies of countries which are members of the Association of South East Asian Nations (ASEAN)
  • The fund has major exposure to Singapore, Thailand, Indonesia, Malaysia and Philippines
  • The fund was launched in India in July 2011 while the parent fund has been existing since September 2009 and is based out of Luxembourg

Fund Focus

JPMorgan JF ASEAN Equity Off-Shore Fund is a fund of fund that invests predominantly in JPMorgan Funds - JF ASEAN Equity Fund, an underlying equity fund which primarily invests in companies of countries which are members of the Association of South East Asian Nations (ASEAN). The fund of fund is launched in July 2011 in India while the parent fund is there since September 2009 based out at Luxembourg. The asset under management of the fund has grown to Rs. 201.19 crore in June 2012 from Rs. 137.45 crore in July 2011.

JPMorgan JF ASEAN Equity Off-Shore Fund, the first ASEAN fund in the mutual fund space, completed one year in the Indian market. ASEAN comprises of 10 countries - Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam, which are considered to be the prominent growth engines in Asia. However, among these, it is only Indonesia, Malaysia, Philippines, Singapore and Thailand, which are the prominent players on the global front as they have active equity markets.

After the 2008 financial crisis, the economic growth model in ASEAN, particularly in Indonesia, Thailand and Malaysia, has been changing, relying more on domestic drivers in order to become more resilient. Despite the gloomy outlook of the European debt crisis and the slower growth in the US and China, ASEAN economic growth is expected to continue its upward momentum, supported by its resilient domestic consumption and private investments. We have put down our views on the prominent countries in ASEAN which are tracked by Fundsupermart.com Research

Singapore is widely viewed as a poster boy for low corruption (especially in the context of the ASEAN region), both on the government as well as the corporate level. This has fostered a culture of strong corporate governance practices amongst Singapore corporations, and the country has its fair share of high-quality companies which are allowed to conduct their business in an environment with little political uncertainty, coupled with a government which is pro-economic growth.

As a trade-off for being one of the slower-growth markets in the ASEAN region, the Singapore market sports a fairly high dividend yield market as some of the larger companies (Banks, Telecommunication, and Media) have managed to maintain stable profit margins due to their more defensive business models. Singapore’s banks, which represent around 25% of the STI, have consistently been ranked amongst the safest in the world on the basis of capital adequacy. Even as net interest margins have been compressed due to the low interest rate environment, there is much scope for margins to increase as interest rates rise in the future. Loans growth remains strong domestically (double-digit y-o-y), while expansion into other Asian markets should also come as a natural progression for further growth, especially given the fairly stable deposit base in Singapore.

Indonesia’s economic growth is contributed by its robust domestic consumption, as it is the world fourth populous country. Different from its peers like Thailand, Malaysia and Singapore, net exports contribution to economic growth is insignificant at only around 10%. The on-going structural reforms to improve the under-invested infrastructure and transportation facilities in Indonesia are important to support economic growth amid the current global uncertainties.

In Malaysia, weaker exports growth could be a threat to its economic growth. Nevertheless, the kick-start of infrastructure projects (such as the building MRT and oil field projects) under the Economic Transformation Programme will continue to underpin private investment, while domestic consumption will be supported by Malaysia's stable income and employment outlook.

On the back of the timely fiscal stimulus package (the Baht350 billion post-flood budget), rice price guarantee scheme, tax-exemption benefits for flood-affected companies as well as the implementation of the minimum wages of Baht300 per day, Thailand’sdomestic consumption and investment is expected to be strong (mainly due to the reconstruction after flood), mitigating the negative impacts from net exports.

Besides the accommodating economic growth, maintaining moderate level of inflation and stabilising the local currency are also the concerns for central banks of Thailand, Malaysia and Indonesia. As such, the central banks are likely to hold their interest rate unchanged at current level for the rest of the year.

In terms of valuations, these three markets (Indonesia, Malaysia and Thailand) are currently priced almost at its fair level based on the 2012 earnings estimates while Singapore is trading at a healthy discount to our fair value estimate of 16x. However, looking at a longer investment horizon, the strong earnings growth prospects in 2013 and 2014 have yet to be priced in. As on August 3, 2012, the estimated PE for 2013 and 2014 for Singapore, Indonesia, Thailand and Malaysia equity markets are still significantly lower than its historical fair PE (see Table 1).

Table 1: Estimated PE (X) of ASEAN countries under our coverage

Estimated PE (X)

Fair PE

2012

2013

2014

Singapore

16

13.9

12.8

11.5

Indonesia

15

14.5

12.5

10.8

Thailand

12.5

12.8

10.8

8.9

Malaysia

16

15

13.6

12.2

 

Investment Strategy

As stated above, JPMorgan JF ASEAN Equity Off-Shore Fund will have exposure to companies having a presence in countries which are members of the ASEAN. But the fund has primarily invested in companies of Singapore, Thailand, Indonesia, Malaysia and Philippines. The average exposure to Singapore, Thailand, Indonesia, Malaysia and Philippines is 30.98%, 25.25%, 23.82%, 12.98% and 2.88% respectively for last six months.

As per the June 2012 portfolio, the fund is underweight on Singapore, Malaysia and Philippines while it is overweight on Thailand and Indonesia compared to its benchmark.

The fund follows a bottom up stock picking strategy. The fund first looks at the economic view on a country then scouts for individual stocks and the sector exposure is the outcome of it. Kasikornbank, Keppel, DBS Group Holding, United Overseas Bank and Astra International are the top 5 holdings of the fund as on June 2012. Keppel, a Singapore based company has a diversified core businesses of offshore and marine, infrastructure, property investment and development, telecommunication & transportation, energy, and engineering. It was amongst the top holdings since January 2012 while the fund has increased exposure to Kasikoranbank over the last six months. The exposure to Kasikoranbank was 2.6% in January 2012 which has increased to 3.9% in June 2012. Kasikoranbank is a Thailand based bank that provides commercial banking services in the domestic market and also has branches in Los Angeles, Hong Kong, Cayman Islands etc. The fund has a well diversified portfolio. The exposure to the top 10 holdings constitutes just 29.83% of the portfolio as of June 2012.

Financials, Industrials and consumer Discretionary are the top sector holdings of the fund and that constitutes around 71% of the portfolio as of June 2012. These were the top holdings since January 2012. The fund has slowly increased exposure to Financials. The exposure to Financials was 29.8% in January 2012 which has increased to 37.4% in June 2012. But it is still slightly underweight on Financials compared to its benchmark.

 

Performance

Although the fund has a 1-year track record in India, superior performance delivered during this period has put it in the limelight. Chart 1 shows the relative performance of the fund in comparison with BSE Sensex Index and MSCI South East Asia Index since its inception. Hence, if an investor has put Rs. 10,000 into the fund at its inception i.e., July 5, 2011, his investments would be worth INR. 12,715 as on August 6, 2012.

Chart 1: Relative performance of JPMorgan JF ASEAN off-shore equity fund with bse sensex and msci south east asia indices

Chart 2: Relative performance of parent fund (JPMorgan Funds - JF ASEAN Equity Fund) with Benchmark since inception


Our take on the fund

JPMorgan JF ASEAN Off-Shore equity Fund, the first fund whose entire portfolio is concentrated in the ASEAN space, has put on an impressive show since its launch in 2011. J.P.Morgan, which has a team of four specialists who are dedicated to the ASEAN region, has  been doing a remarkable job as can be seen from the performance of the parent fund vis-à-vis its benchmark. This gives us the confidence in recommending this fund to investors who want to take an exposure into the global markets. An exposure into this fund will not only help in diversifying an investor’s portfolio but will also reduce concentration risks.

 

Details of JPMorgan JF ASEAN Equity off-shore fund


Investment Objective

To provide long term capital growth by investing predominantly in JPMorgan Funds – JF ASEAN Equity Fund, an equity fund which invests primarily in companies of countries which are members of the Association of South East Asian Nations (ASEAN).

Inception Date

05-July-11

Benchmark Index

MSCI South East Asia Index

Fund Manager

Namdev Chougule

AAUM (as on 30 June 2012)

Rs. 201.19 crore

Entry Load

Nil

Exit Load

2%, if redeem within 6 months;
1.5%, if redeem  after 6 months up to 12 months;
1%, if redeem after 12 months up to 18 months


To invest into this fund, click here

 

Disclaimer: iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's scheme information document including statement of additional information. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer on the website.Please read our disclaimer in the website. Risk Factors: Mutual funds, like securities investments, are subject to market risks and there is no guarantee against loss in the Scheme or that the Scheme’s objectives will be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on various factors and forces affecting capital markets. Past performance of the Sponsor/the AMC/the Mutual Fund does not indicate the future performance of the Scheme. The name of the Scheme does not in any manner indicate the quality of the Scheme, its future prospects or returns. Please read the Statement of Additional Information and Scheme Information Document carefully before investing.



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