The trust is also seeking shareholder approval for the facility to issue new shares worth up to 30 per cent of the existing share capital, and wants to be able to take out longer-term debt. The moves represent an expansion plan which follows shortly after a raft of high-profile soft-closures in the open-ended emerging markets sector have left the field open for other portfolios to take new business.
Recently FE Trustnet research showed that only 11 open-ended emerging market funds have added alpha to their benchmark over the past five years, and four of those are soft-closed.
JPMorgan Emerging Markets Income fund is run by Richard Titherington, who is JPMorgan’s chief investment officer for emerging markets.
The closed-ended fund has performed strongly since it was launched in July 2009, with the NAV up 50.46 per cent against performance of 15.63 per cent for the MSCI Emerging Markets benchmark.
In share price terms the trust has made 47.16 per cent, data from FE Analytics shows, while the fund currently yields 3.49 per cent.
Performance of trust versus index since July 2010
Source: FE Analytics
Currently the trust charges a fee worth 10 per cent of NAV outperformance of the MSCI Emerging Markets index, which is capped at 0.75 per cent of average net assets.
However, any excess can be carried forward to future years, meaning that investors could end up paying the full charges even if the fund underperforms.
The trust is one of a number to remove or review performance fees after the RDR came into force earlier this year, and Charles Cade, head of investment companies research at Numis, says that the move makes the fund more competitive.
“We believe that the abolition of the performance fee accrual makes sense,” he said. “Many investors fail to understand that caps on performance fees are ineffective if the excess can be carried forward, as the NAV needs to accrue for the full potential liability (albeit that this accrual may be written back if the fund subsequently underperforms).”
“With increasing fee competition from open-ended funds as a result of "clean" share classes, we believe that it makes sense for Boards to review the structure of both base fees and performance fees.”
The trust is in high demand, and is currently trading on a premium of 4 per cent, having been on an average premium of 2.8 per cent over the past year, according to data from Winterflood Securities.
The facility to issue new shares would allow the trust to significantly boost market cap and make new investments.
“The proposal to extend JEMI’s issuance powers comes as little surprise given the fund’s track record and the strong demand for yield from investors,” Cade said.
The manager says that investors might reasonably be concerned about the plan to take on longer-term debt.
“Historically, many investment trusts took out long dated debentures at expensive rates (some over 10 per cent per annum) that have proved a considerable burden.”
“In addition, the split capital crisis increased investors’ concerns over long term borrowings. Since the global financial crisis, it has often been hard to find long term debt facilities, particularly for specialist investment companies.”
However, Cade says that he thinks the use of long-term borrowing would be a sensible way to take advantage of the closed-ended structure to lock in low borrowing rates – linked to low interest rates – over the longer term.
The trust faces a continuation vote in 2016 and every three years thereafter. Some boards and investors argue that the maturity of liabilities should not exceed a continuation vote, which would limit borrowing to under three-year maturities in this case.
Long-term borrowing could be used to deter decisions to wind up the trust, the analyst explains.
However, Cade says that the JPMorgan Global Emerging markets Income trust is so well-placed and successful that it justifies the assumption of a longer life and the use of longer-term gearing.
“We believe it should be managed as an ongoing concern, taking decisions in the interests of long term shareholders,” he said.
Performance fees discourage many retail investors from investing in trusts, and a number of high profile portfolios have ditched them to increase their appeal.
Bankers Investment Trust ditched its performance fee in January, as the RDR came into force.
Alex Crooke’s £616m trust currently has ongoing charges of just 0.45 per cent, according to data from FE Analytics.
In contrast to Titherington’s portfolio it is a UK-focused fund, and it has significantly outperformed the FTSE All Share over the past three years.
Our data shows the trust has made 69.59 per cent over that time as the benchmark has made 50.88 per cent.
Performance of trust against benchmark over 3yrs
Source: FE Analytics
Last year JPM Smaller Companies removed its performance fee, as did Securities Trust of Scotland and Standard Life UK Smaller Companies.