Developed market equities have outperformed their emerging counterparts recently: FE Analytics data shows the MSCI Emerging Markets index has lost money over two years, while the vast majority of developed indices have posted double-digit returns.
Performance of indices over 2yrs
Source: FE Analytics
Titherington (pictured), head of the emerging market equity team at JPM and manager of a number of open- and closed-ended portfolios, says that falling commodity prices, a strong US dollar and pressure on corporate earnings have all put downward pressure on emerging markets growth.
However, he says that these factors are not structural long-term concerns, and he remains positive on the asset class."The key reason why emerging markets have underperformed against developed markets over the last six months is because reported earnings have seen a real slump and have surprised on the downside," he said.
"However, developed markets – especially the US – have seen positive earnings growth. This trend needs to reverse for emerging markets to outperform."
"The prospects for the emerging markets are still positive, though. Nothing structural has changed, as it is factors such as underlying commodity prices and the rising pressure on corporate margins that have affected earnings."
"Much of these headwinds will ultimately turn into tailwinds," he added.
The manager says that the strength of the US dollar will be short-lived as quantitative easing will ultimately debase the currency, and points to the pressure on corporate margins as becoming a positive before long.
"While pressure on corporate margins may provide a headwind to the region in the short-term, it will become a tailwind over time, because this ultimately leads to an increase in demand," he explained.
Both of these developments, he says, will aid the recovery of emerging markets.
As for commodity prices, although the manager is avoiding the sector at the moment, he is unconcerned about the outlook because he is optimistic about Chinese growth.
"We don’t have much exposure to the sector, but for prices to recover from here we need to see evidence of a significant recovery China," he said.
"My primary attraction to China is on a valuation basis, but I would certainly think we should see much better growth coming out of its economy over the next six to nine months."
The manager says that he has turned his portfolios towards more economically sensitive stocks, as he feels the more defensive areas of the market have now been over-bought.
"When you look at emerging market asset classes, there has been a huge divergence in the performance of the 'safety'first' assets and ASEAN regions against more cyclical stocks," he continued.
"We believe there is now better value in the likes of China over ASEAN countries and better value in Brazil over Mexico."
"Although we like cyclicals, our exposure is towards more domestic cyclicals and not commodities."
Titherington runs a number of portfolios at JPM, one of which is the JP Morgan Emerging Markets Investment Trust.
He became co-manager of the trust in April 2005, joining the long-serving Austin Forey who has been in charge of the portfolio since 1994.
Since Titherington took over, the trust has returned 244.22 per cent, beating its benchmark – the MSCI Emerging Market index – by 68.87 percentage points.
Performance of fund vs index since Apr 2005
Source: FE Analytics
The £845m trust has also beaten the index over one, three and five years and has tended to have a lower annualised volatility over these periods.
It has overweight positions in Brazil, India, South Africa and Hong Kong.
JP Morgan Emerging Markets IT is not currently geared and is trading on a 10 per cent discount to its NAV. The trust has an ongoing charges figure (OCF) of 1.2 per cent, exclusive of performance fee.
Titherington also runs two emerging market income funds – one open-ended and the other closed-ended.
He says that although vehicles of this type currently distribute a similar yield to their UK rivals, the potential for dividend growth is much higher.
"I am a big fan of diversification generally, but I do think UK investors tend to have a home-country bias," he said.
"An income investor should realise that emerging market yield levels are relatively similar to those in the UK; however these companies should see dividend growth of around 7 to 12 per cent per annum – a lot faster than in the UK."
"Income stocks have performed well over the last six to nine months. We are finding a number of high-yielding stocks in South Africa and also in telecoms across the emerging world."
"Telecoms in the developed markets are seeing their revenues shrink, but it is a different story in emerging markets," he added.
Titherington has managed JP Morgan Emerging Markets Income IT since its launch in July 2010.
Over that time the trust has returned 38.69 per cent, while the MSCI Emerging Markets index has returned 12.07 per cent.
Performance of fund since launch vs index
Source: FE Analytics
The £277m trust has a yield of 3.7 per cent.
Its largest regional weighting is to South Africa, accounting for 13.9 per cent of AUM.
Unlike his growth trust, Titherington’s JP Morgan Emerging Markets Income IT is trading on a premium of 1.5 per cent and is geared at 8 per cent.
The trust has an OCF of 1.2 per cent and also has a performance fee.