Another one Bites the Dust: Jupiter Emerging and Frontier Income

To lose one investment trust from my portfolio to voluntary liquidation is unfortunate, but to lose a second one within a few months…so soon after Acorn Income…

The recent announcement of the proposed liquidation of the Jupiter Emerging and Frontier Income trust (JEFI) marks a disappointing end to an investment I’d made with high hopes at IPO in 2017.

With a long-term investment horizon, I remain firmly of the view that I should have a structural allocation of at least 10% to emerging markets,with a sizeable proportion of this focused outside of China, not least due to the heightened geo-political risks recent events have highlighted. This Jupiter trust, with an emphasis on high yield and up to 25% allocation to frontier markets, looked like an attractive means of generating income and growth.

One COVID-related dividend reduction period aside, the trust displayed a pleasing commitment to growing the dividend, with the current year seemingly poised to deliver 1.25p a quarter, a yield of around 5%.

Although JEFI's net asset value had not made great progress given many headwinds, not least COVID; over 3 years to March 18^th the NAV total return of 19.5% exceeded that one or two peers such as Blackrock Frontiers and Fundsmith Emerging, although was outpaced by the lower-yielding JP Morgan Emerging Markets Income Trust.

As recently as mid-February 2022 the JEFI share price traded just above the issue price of £1.00. But since then, the news in Ukraine - the trust had some Russian exposure – and the announcement of its imminent demise have hardly helped sentiment and the shares trade at around 90p as of 18^th March 2022, the discount still about 10%.

Given the probable offer of a cash exit at Net asset value it probably makes little sense to sell out now, and as with Acorn Income hold out to the bitter end. This is particularly the case as there might be some final dividend payment(s) and the emerging market alternatives are likely to be at least somewhat correlated to any near-term moves in the JEFI share price.

Where next for Emerging Markets Income?

So, what replacement investment should I make for this c. 3% of my portfolio?

I already hold Blackrock Frontiers. The aforementioned JP Morgan Emerging Markets Income trust has performed reasonably well in capital terms, but the dividend has been broadly flat for several years, and yields somewhat below 4%.

Given my inclination towards small cap value, I’m tempted to revisit a former holding, an ETF, the WisdomTree Emerging Markets Small Cap Dividend ETF.

I’d sold out of this a while ago due to concerns over its dividend visibility during COVID, but according to data on justETF, the COVID year dip in dividends from 45p to 40p a share in 2020 has begun to be corrected with a rise to 43p in 2021 and potentially 47-48p this year if the January 2022 half-year dividend of 24p is a guide. 

Although 'only' 3.5% or so yield at the current DGSE share price, the exposure to a wide range of small caps across several emerging markets offered by DGSE is attractive, and the DGSE share price has held up surprisingly well in the first quarter of 2022.

I’ve also noted the recent improvement in Latin American markets, so alongside a return to DGSE, a partial allocation of the Jupiter funds to the Blackrock Latin American trust - which has a 1.25% per quarter of NAV distribution policy - may help replicate the income yield from JEFI.

I just hope the board of JEFI acts swiftly and allows holders to exit at NAV as quickly as possible. There is no equivalent income-paying emerging markets fund available within the Jupiter stable, so the option of a dignified departure should be offered to JEFI shareholders, particularly those like me who invested right at the start of trust's regrettably short life.