JPMorgan Brazil Investment Trust plc Annual General Meeting · 6. Performance. Source: J.P. Morgan...
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JPMorgan Brazil Investment Trust plc Annual General Meeting September 2019 Sophie Bosch de Hood, Executive Director Portfolio Manager [email protected]
Transcript of JPMorgan Brazil Investment Trust plc Annual General Meeting · 6. Performance. Source: J.P. Morgan...
JPMorgan Brazil Investment Trust plcAnnual General MeetingSeptember 2019
Sophie Bosch de Hood, Executive DirectorPortfolio [email protected]
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The past year: Market
Source: Bloomberg. Data as of August 2019
Past performance is not a reliable indicator of current and future results
70
80
90
100
110
120
30/0
4/20
18
14/0
5/20
18
28/0
5/20
18
11/0
6/20
18
25/0
6/20
18
09/0
7/20
18
23/0
7/20
18
06/0
8/20
18
20/0
8/20
18
03/0
9/20
18
17/0
9/20
18
01/1
0/20
18
15/1
0/20
18
29/1
0/20
18
12/1
1/20
18
26/1
1/20
18
10/1
2/20
18
24/1
2/20
18
07/0
1/20
19
21/0
1/20
19
04/0
2/20
19
18/0
2/20
19
04/0
3/20
19
18/0
3/20
19
01/0
4/20
19
15/0
4/20
19
29/0
4/20
19
13/0
5/20
19
27/0
5/20
19
10/0
6/20
19
24/0
6/20
19
08/0
7/20
19
22/0
7/20
19
05/0
8/20
19
19/0
8/20
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Emerging Markets Brazil
MSCI Brazil index in GBP (rebased)
Bolsonaro Elected
Friction: Maia and Bolsonaro
Petrobras DieselPrice intervention
Argentina Primary Election
Fed Dovish and Trade
Vale:Brumadinho Incident
Risk of delay of Pension reform Trump tweets 25% tariff on $200bil of imports
Capital Markets deal wave
Pension Reform approved 1st round
Central Bank resumes interest rate cutes
Trucker Strike –paralysis of the country Polls show Bolsonaro leading
Lula’s Arrest
Turkey /Argentina Crisis
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What has driven markets?
9.1% 8.6% 8.3% 7.8%5.7%
4.0%
-4.4%-6.2%
-12.6%-14.2% -14.4% -15.2%
18.5% 17.8%
12.9%10.8% 9.9%
8.0%
-40%
-30%
-20%
-10%
0%
10%
20%
LatinAmerica
EM Asia EM U.S. Europeex-UK
Japan U.S. LatinAmerica
Japan EM Europeex-UK
EM Asia U.S. Europeex-UK
LatinAmerica
EM EM Asia Japan
Total return, USD
2019 YTD2004-2018 annualized 2018
Currency
Multiples
Dividends
Earnings
Total return
Sources of global equity returns*
Source: FactSet, MSCI, Standard & Poor’s, J.P. Morgan Asset Management.All return values are MSCI Gross Index (official) data, except the U.S., which is the S&P 500. *Multiple expansion is based on the forward P/E ratio and EPS growth outlook is based on National Treasury Management Agency earnings estimates. Chart is for illustrative purposes only. Past performance is not indicative of future results. Guide to the Markets – Latin America. Data are as of June 30, 2019.
GTM – LATAM | Page 23
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Year to date 2019, earnings coming through compressing the valuation
Source: Factset, J.P. Morgan Asset Management. Data as of 31 July 2019. EPS = Earnings per share.
Past performance is not a reliable indicator of current and future results
Brazil: Sources of total returns
7%
-22%
0%
-16% -14%
-41%
67%
24%
0%
19%
-50%
-30%
-10%
10%
30%
50%
70%
2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD 2019
Dividend Valuation Chg EPS Growth (Lcl) Currency Total Return
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Brazil – Snapshot of the economy
Source: (Left) IBGE (Brazilian Statistics and Geography Institute), J.P. Morgan Asset Management. (Top right) Central Bank of Brazil; Non-earmarked funds are those where interest rates are determined by market conditions. (Bottom right) Central Bank of Brazil, IBGE (Brazilian Statistics and Geography Institute). Target inflation bands set by Central Bank of Brazil. *Focus survey conducted by Central Bank of Brazil. **Includes prices set at federal level (telephone services, petroleum derivatives, electricity, health plans) and state/municipal level (water and sewage taxes, value added and real estate taxes, public transport costs). Guide to the Markets – Latin America. Data are as of June 30, 2019.
-16%
-12%
-8%
-4%
0%
4%
8%
12%
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Quarter-over-quarter % change at annual rate, seasonally adjusted
1Q19:-0.6%
Average: 2.4%
Real GDP
-12%
3%
18%
33%
48%
'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Year-over-year % change, non-earmarked credit*
May 2019: 14.0%May 2019: 9.4%
HouseholdsCorporates
Credit growth
5%6%7%8%9%
10%11%12%13%14%15%
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21
BCB Selic target rate and consensus expectations, end of periodConsensus*
Target policy rate and expectations
GTM – LATAM | Page 7, 8, 9
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Source: J.P. Morgan Asset Management Data as of 31st July 2019
Source: J.P. Morgan Asset Management estimates. Data as of 31st July 2019REER (real effective exchange rate) relative to fair value (export-adjusted 10 year average REER) on the x axis and policy rate on the y axis. Carry (a currency with a high interest rate) Countries over the line of best fit provide good carry for their currency valuation
BR
CLCN
IDIN
MX
MYPH
RU
TH
TR
ZA
-0.5
1.5
3.5
5.5
7.5
9.5
11.5
13.5
15.5
17.5
19.5
21.5
23.5
-30 -20 -10 0 10 20 30
Polic
y Ra
te le
ss U
S
REER Relative to Fair ValueCHEAP EXPENSIVE
LOW
CARR
YHI
GH C
ARRY
80
85
90
95
100
105
110
115
'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
EM Reer Ratio (JPMAM)
Currency valuation and interest ratesEmerging Markets (EM) Equity Weight REER Ratio
Looking ahead: Currency
AU: Australia; AR: Argentina; BR: Brazil; CL: Chile; CN: China; CO: Colombia, CZ: Czech Republic; EG: Egypt; GR: Greece; HK: Hong Kong; HU: Hungary; ID: Indonesia; IN: India; JP: Japan; KR: South Korea; MX: Mexico; MY: Malaysia; NZ: New Zealand; PH: Philippines; PL: Poland; RU: Russia; SG: Singapore; TH: Thailand; TR: Turkey; TW: Taiwan; ZA: South Africa.
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Performance
Source: J.P. Morgan Asset ManagementInception Date: 26 April 2010Index History - 26 April 2010 To Current - MSCI Brazil 10/40. Total return, net of charges and any applicable fees using cum income Net Asset Values (NAVs) debt at par with net dividend (if any) reinvested. GBP
Past performance is not a reliable indicator of current and future results.
JPMorgan Brazil Investment Trust plc to 30th April 2019 – 12 month rolling returns
30/4/18 –
30/4/19
30/4/17 –
30/4/18
30/4/16 –
30/4/17
30/4/15–
30/4/16
30/4/14–
30/4/15
30/4/13–
30/4/14
30/4/12–
30/4/13
Portfolio return 3.4% 4.1% 44.0% -14.4% -14.6% -24.4% 4.4%
Index 6.8% 11.1% 44.5% -10.9% -9.5% -17.1% 0.2%
Ordinary share price return -0.9% 4.3% 38.6% -18.2% -11.9% -26.0% -2.7%
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PerformanceJPMorgan Brazil Investment Trust plc
Brazil’s presidential election at the end of October was the pivotal political event of the period under review, coming half-way through the Company’s financial year and impacting both business sentiment and equity markets’ performance before and after.
The first half of the Company’s financial year – before the Bolsonaro victory – was a period of considerable volatility, with politics, inflation worries and market sentiment at home and abroad all weighing heavily on the country’s economic prospects.
Indeed, post-election, there was an extremely positive market reaction to Bolsonaro’s victory which shielded Brazilian stocks from the global market sell-off in October.
The Company’s net asset value rose by 3.4% over the year, whilst its share price fell by 0.9%. NAV performance lagged the benchmark index, MSCI Brazil 10/40 which rose by 6.8%.
Source: J.P. Morgan Asset Management. Inception Date: 26 April 2010Index History - 26 April 2010 To Current - MSCI Brazil 10/40 Total return, net of charges and any applicable fees using cum income Net Asset Values (NAVs) debt at par with net dividend (if any) reinvested. GBP.
Past performance is not a reliable indicator of current and future results.
12 Months to 30th April 2019
Portfolio return 3.4%
Index 6.8%
Ordinary share price return -0.9%
12 Months to 31st July 2019
Portfolio return 37.8%
Index 40.8%
Annualised Performance since inception – 31st July 2019
Portfolio return 0.6%
Index 2.5%
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Performance attribution
Source: J.P. Morgan Asset Management, Factset. (o) = overweight, (u) = underweight, (n) = neutral. Data is gross of fees in GBP. Data for total attribution shown (stock selection plus country). Attribution results are for indicative purposes only. The portfolio is actively managed. Holdings, sector weights, allocations and leverage, as applicable, are subject to change at the discretion of the Investment Manager without notice.
Past performance is not a reliable indicator of current and future results. *Not in Benchmark
JPMorgan Brazil Investment Trust plcfor 1 year ending 30 April 2019
Top contributors Relative weight (%)
Stock return (%)
Impact (%)
IRB Brasil RE 2.80 91.70 1.68
Cielo -1.64 -9.66 1.48
Lojas Renner 2.76 36.17 0.95
Ambev -1.12 -22.83 0.63
Banco Do Brasil 0.55 32.45 0.63
Top detractors Relative weight (%)
Stock return (%)
Impact (%)
Petrobras -8.45 14.17 -1.42
Via Varejo* 0.67 -55.33 -1.04
Iochpe Maxion* 1.89 -31.77 -0.94
JBS -1.16 111.90 -0.92
Fleury* 2.20 -17.04 -0.86
Attribution summary Stock: -1.25Sector: 0.36
Benchmark MSCI Brazil 10/40 Total Return (Net) Index
Sector attribution (%)
-1.30
-1.21
0.11
1.40
0.26
-1.30
-0.87
-0.57
-0.35
0.26
0.62
2.06
-4.0 -2.0 0.0 2.0 4.0
Cash
Energy (u)
Consumer Discretionary (o)
Consumer Staples (u)
Utilities (u)
Industrials (o)
Health Care (o)
Real Estate (u)
Materials (u)
Communication Services (u)
Information Technology (n)
Financials (o)
Stock selectionAsset allocation
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8.7
4.62.7 2.2
0.9
-0.1 -0.8-2.6 -2.8
-6.1
-8.8-11.0
-5.5
0.0
5.5
11.0
ConsumerDiscretionary
Financials Industrials InformationTechnology
Health Care ConsumerStaples
Real Estate Utilities CommunicationServices
Materials Energy
Active and absolute sector positions
Sector positioning
Source: J.P. Morgan Asset Management. The Fund is an actively managed portfolio. Holdings, sector weights, allocations and leverage, as applicable, are subject to change at the discretion of the Investment Manager without notice.
JPMorgan Brazil Investment Trust plc as of 31st July 2019 Benchmark MSCI Brazil 10/40 Total Return (Net) Index
Relative to benchmark (%)
17.6 35.8 11.2 2.9 3.1 13.5 0.8 4.5 0.0 7.4 1.0Portfolio weight (%)
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Top 10 holdings Portfolio weight (%)
B3 Sa 7.3
Banco Bradesco 7.1
Lojas Renner 6.5
Itau Unibanco 6.2
Vale 5.4
Irb Brasil Ressegu 4.8
Ambev 4.8
Localiza Rent A Car 4.0
Raia Drogasil 3.6
Banco Do Brasil 3.2
Portfolio positions
Source: J.P. Morgan Asset Management. The investment trust is actively managed. Holdings, sector weights, allocations and leverage, as applicable, are subject to change at the discretion of the Investment Manager without notice.
JPMorgan Brazil Investment Trust plcas of 31 July 2019
Top 5 overweights Fundweight (%)
Relative position (%)
Lojas Renner 6.5 3.4
Irb Brasil Ressegu 4.8 3.0
B3 Sa 7.3 2.7
Hapvida Participacoes 2.6 2.6
Mercadolibre Inc 2.2 2.2
Top 5 underweights Fundweight (%)
Relative position (%)
Petrobras 0.0 -7.8
Vale 5.4 -3.1
Jbs 0.0 -2.3
Telefonica Brasil 0.0 -2.0
Magazine Luiza 0.0 -1.7
Benchmark MSCI Brazil 10/40
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The long view: it’s not just which companies we own…
Source: J.P. Morgan Asset Management. Data as of end July 2019. Images from ShutterstockThe companies/securities above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell.
Investment exposures in the JPM Brazil Investment Trust
Ambev M.Dias Branco
Consumer Brands
Digital World
Pagseguro Linx
Online Consumer Services
Mercadolibre Magazine Luisa
Offline Consumer Services
Lojas Renner Raia Drogasil Localiza Burger King
Healthcare
SulAmerica Hapvida
Financial Services
Itau Bradesco Banco do Brasil IRB
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…it’s earnings that matter over the long-term
Source: J.P. Morgan Asset Management’s chart as of March 2017 based on data from MSCI for the period between 1994 and 2017.
Past performance is not a reliable indicator of current and future results.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 36 48 60 72 84 96 108120
Holding Period (Months)
Average Return by Component
Trailing 5 years
Dividends 2.6%
Earnings Growth 10.2%
Currency -4.0%
Valuations -1.7%
MSCI EM 8.3%
Percentage Contribution to Total Returns by Holding Horizon
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Stock example: PagSeguro (Brazil, Information Technology)
Source: Company reports. J.P. Morgan Asset Management, data as of end of July 2019. Image from Shutterstock. The companies/securities above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell.
Strategic Classification: Trading
Economics First mover advantage in an underserved segment. Despite collapsing pricing in other
segments, PagSeguro pricing has proved resilient. Lean business model means required minimal economies of scale. PAGS has produced
good profitability at only 7% market share. Because of an unusual settlement regime and the popularity of installment payment,
acquiring is more lucrative in Brazil than in the UK or US. But regulators want to change this.
Duration Global secular trend towards card spending and away from cash still in its early stages
in Brazil. Micro merchant segment especially underpenetrated: most customers never accepted
cards prior to working with PagSeguro. Stage 2: upgrading client relationships from acquiring to neobanking could extend
growth trajectory.
Governance Dual share class allows control with minority shareholding. Though common in tech
IPOs, we think it is rarely justified. Potential conflict of interest with parent UOL. The group claims substantial synergies
from the relationship with UOL but there is potential for abuse in related party transactions.
Acquiring is famously low transparency business, and PAGS is no exception. Disclosure is limited and we have had some issues with management access.
PagSeguro Stock Price (GBR)
40
60
80
100
120
140
160
180
May
-18
Jun-
18
Jul-1
8
Aug
-18
Sep
-18
Oct
-18
Nov
-18
Dec
-18
Jan-
19
Feb-
19
Mar
-19
Apr
-19
May
-19
Jun-
19
Jul-1
9
Aug
-19
MN40BRU Index MXBR Index
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Stock example: Burger King (Brazil, Consumer Discretionary)
Source: Company reports. J.P. Morgan Asset Management, data as of end of July 2019. CAGR = Compound Annual Growth Rate. Image from Shutterstock. The companies/securities above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell.
Strategic Classification: Quality
Burger King Brazil Stock Price (GBR)
40
60
80
100
120
140
160
May
-18
Jun-
18
Jul-1
8
Aug
-18
Sep
-18
Oct
-18
Nov
-18
Dec
-18
Jan-
19
Feb-
19
Mar
-19
Apr
-19
BKBR3 BZ Equity MN40BRU Index
Economics Burger King Brazil has delivered a strong top line growth. During the period, Burger King
Brazil’s market share four-folded in the burger segment, reaching 32% in 2016. Burgers/ Fast-food industry growing ~2x/ 1.5x the nominal GDP growth in Brazil,
respectively. Operating margins and returns in an upward trend. Cash flow generation on the positive
territory from 2019 onwards.
Duration In Brazil, the burger fast food segment had a 14% 2011-16 CAGR supported by the
expansion of the main chains along with structural drivers like high urbanization rates and the increased number of people living alone.
Low spending per capita on Fast-Food compared to developed countries. Burgers segment is still small and the sector is highly unconsolidated. Further growth option as they enter into other Fast food segments.
Rapidly evolving consumer tastes, not a short term threat as BKB has menu flexibility.
Governance Good operators with excellence in execution; Deep understanding of the market &
strong brand building. Half of the executive officers’ compensation is profit sharing (variable).
Private equity firms own 35% of the company; 3G “owner culture” stamp. BKB listed in Novo Mercado, the highest corporate governance level of Bovespa.
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Economics End of reinsurance monopoly in 2007. Dominant market share with
over 36% 6x larger than the 2nd player The business has a natural hedge for economic cycles between
underwriting results and investment income
Duration Local operation with local presence gives them agility, empowerment of
local management and flexibility for claims regulation The current competitive environment appears more benign. Others in
the sector are taking a more conservative approach on taking on risk given the current macroeconomic scenario of recovery and political uncertainties
Governance
Corporate Governance of highest standards with Novo Mercado listing. True corporation as of mid 2019 with control in the market.
Stock example: IRB Brasil Resseguros (Brazil, Financials)
The companies above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell. Image from Shutterstock.
Past performance is not a reliable indicator of current and future results.
Strategic Classification: Quality
An undisputed leader with highly profitable operation
IRB Stock Price (GBR)
Source: J.P. Morgan Asset Management, company reports. Data as of 29th August 2019.
0
50
100
150
200
250
May
-18
Jun-
18
Jul-1
8
Aug
-18
Sep
-18
Oct
-18
Nov
-18
Dec
-18
Jan-
19
Feb-
19
Mar
-19
Apr
-19
May
-19
Jun-
19
Jul-1
9
Aug
-19
MN40BRU Index IRBR3 BZ Equity
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ConclusionJPMorgan Brazil Investment Trust plc as of 31st July 2019
As the only closed-ended fund that specifically targets Brazilian focused companies, the Company is well placed to tap into the country’s strong domestic growth potential.
This is not without its challenges and, at least in the short term, market uncertainty and fragile business sentiment are likely to prevail.
Our own focus remains unchanged: investing in fundamentally sound businesses with good long-term prospects to deliver solid shareholder returns.
We are confident in the quality of the Company’s portfolio and mindful that with uncertainty comes opportunity: we view sentiment shifts and market setbacks as opportunities to buy into high quality businesses with good prospects that are resilient in uncertain times.
Opinions, estimates, forecasts, projections and statements of financial market trends are based on market conditions at the date of the publication, constitute our judgment and are subject to change without notice. There can be no guarantee they will be met.
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Investment objective and risk profile
Please refer to the Investor Disclosure Document, latest annual report, and Key Information Document (KID) for more information relating to the Company.
JPMorgan Brazil Investment Trust plc as of 30th November 2018
Risk profile
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.
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 single market in which the Company primarily invests, in this case Brazil, may be subject to particular political and economic risks and, as a result, the Company may be more volatile than more broadly diversified companies.
Investors should be aware that there is a Brazilian Presidential Decree in force, as amended from time to time, detailing the current IOF tax rate (Tax on Financial Operations), that applies to foreign exchange inflows and outflows. The application of the IOF tax may reduce the Net Asset Value per share.
Investment objectiveTo provide shareholders with long term total returns, predominantly comprising capital growth but with the potential for income, by investing primarily in Brazilian focused companies.
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Important information
This is a marketing communication and as such the views contained herein are not to be taken as an advice or recommendation to buy or sell any investment orinterest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may havebeen acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and donot necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investmenttechniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to bereliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference ornotification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxationagreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of theproducts or underlying overseas investments. Past performance and yield are not reliable indicators of current and future results. There is no guarantee that anyforecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment products, there can be no assurancethat those objectives will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and itsaffiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal andregulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEAPrivacy Policy www.jpmorgan.com/emea-privacy-policy. Investment is subject to documentation. The Investor Disclosure Document, Key Features and Terms andConditions and Key Information Document can be obtained free of charge from JPMorgan Funds Limited or www.jpmam.co.uk/investmenttrust. Thiscommunication is issued by JPMorgan Asset Management (UK) Limited, which is authorised and regulated in the United Kingdom by the Financial ConductAuthority. Registered in England No: 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.
Material ID: 0903c02a826ae73a
