Lessons learned from investment mistakes

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Omar Negyal, co-manager of JP Morgan’s Emerging Markets Dividend Fund

Neygal co-manages the $484m JP Morgan Emerging Markets Dividend Fund, which aims to combine high income and capital growth, but the emphasis is always on buying dividend-paying stocks in emerging markets.

“A regular dividend payout history and strong corporate governance, including respect for minority shareholders, is a prerequisite for the type of stock that we invest in,” he said.

Extensive screening and step-by-step stock categorization flowing due diligence into what Neygal’s team call quality and premium stocks should induce confidence that their selections are solid.

Holding periods are typically four-to-five years, barring “negative surprises,” he said.

“We sell a stock when its payout disappoints, or if the original investment thesis changes – for instance, a shift in business focus – or if its price rises enough that its valuation becomes expensive and its dividend yield too low,” he said.

Negyal insisted that negative surprises are rare, but regrets owning a Brazilian loyalty card company that last year announced an unexpectedly low payout ratio for 2019.

“Instead, the company decided to divert its cash inappropriately”, according to Negyal.

“We reviewed the position and tried to talk to the management, but received no explanation for its actions. As result, we sold out of our position immediately,” he said.

Negyal believes this instance reinforces the need for vigilance and a disciplined due diligence process in order to weed out companies with unreliable management.

“Surprises, by their nature, will occur. But, you can do your best with through rigorous analysis to minimise their likelihood,’ he said.

“When they do happen, then we’ve learned that you have to act decisively and sell the stock,” he added.

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