For Innovation, Look East
EPAM Systems, Inc. – a Belarusian company listed on the New York Stock Exchange (NYSE) – is a good example both of the country-agnostic principles by which the JPMorgan Emerging Markets Investment Trust is run, and of the freedom the team enjoys to invest beyond the normal boundaries of the MSCI EM Index – By Austin Forey
Fundamentally, what we’re trying to do with our investments in emerging markets is deliver strong returns for the level of risk we’re taking. While we consider regional and local trends, as well as attractive consumer related themes, the focus for us is on companies.
The rise of IT outsourcing
IT outsourcing has been a growth area in emerging markets since before the turn of the millennium. Outsourcing first became popular as an idea in the 1980s, becoming a recognised business strategy in the early 90s. With advancements in communications, IT became an obvious candidate for outsourcing to developing countries, since unlike with manufacturing, no transportation costs are involved.
India became the first global hub for IT outsourcing, thanks to the presence of cheap, relatively well-educated labour and a rapidly liberalising economy with strong links to the Western world. More recently, several ex-Soviet states (most notably the Ukraine but also Belarus) have risen to prominence, a legacy of government education policy during the Soviet era which focused heavily on scientific study and research, including computing.
An enterprise software development, design and consultancy firm, EPAM was co-founded by two Belarus natives and for most of its life has based the majority of its engineers there. This has allowed the company to benefit from the availability of a strong pool of skilled software engineers while keeping labour costs low.
At the same time, being headquartered in the US (and listed on the NYSE since 2012) has improved company visibility, making it easier for the company to access international investment and capture a global client-base. The firm has grown to employ 30,000 people, including development teams in North America, Europe, Asia and Australia.
Looking for opportunities beyond the benchmark
The trust first invested in EPAM in 2014, selecting it as a company with strong fundamentals in a rapidly growing sector. As a US listed company with a global footprint which bases a large part of its workforce in an emerging market, it’s a good example of our freedom to look beyond the benchmark and the confines of the major emerging markets.
While long-term thematics and business fundamentals are of key importance, the company’s geographic location adds a strong element of diversification to the portfolio. This is particularly welcome given the impact of a continuing strong dollar on other emerging markets companies.
EPAM is just one example; the trust’s 76% active share (a measure of the difference in the company’s portfolio compared to the benchmark index) is testament to our freedom to invest not in a list of countries defined as emerging markets, but in a carefully chosen selection of high-quality, diverse companies from across the globe.
Austin Forey is lead portfolio manager for the JPMorgan Emerging Markets Investment Trust.
JPMorgan Emerging Markets Investment Trust plc
Quarterly rolling 12 months – as at end of June 2019 (%)
Past performance is not a guide to current and future performance. Source: J.P. Morgan Asset Management/Morningstar. Net asset value performance data has been calculated on a NAV to NAV basis, including ongoing charges and any applicable fees, with any income reinvested, in GBP.
Exchange rate changes may cause the value of underlying overseas investments to go down as well as up. Investments in emerging markets may involve a higher element of risk due to political and economic instability and underdeveloped markets and systems. Shares may also be traded less frequently than those on established markets. This means that there may be difficulty in both buying and selling shares and individual share prices may be subject to short-term price fluctuations. Where permitted, a Company may invest in other investment funds that utilise gearing (borrowing) which will exaggerate market movements both up and down. External factors may cause an entire asset class to decline in value. Prices and values of all shares or all bonds could decline at the same time, or fluctuate in response to the performance of individual companies and general market conditions. This Company may utilise gearing (borrowing) which will exaggerate market movements both up and down. This Company may also invest in smaller companies which may increase its risk profile. The share price may trade at a discount to the Net Asset Value of the Company. The Company may invest in China A-Shares through the Shanghai-Hong Kong Stock Connect program which is subject to regulatory change, quota limitations and also operational constraints which may result in increased counterparty risk.