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JPM's Kirkman on why he's a bull in a China strop

JPM's Kirkman on why he's a bull in a China strop

Writing this article makes me feel like the grim reaper at the best of times, let alone after the train wreck that was 2011.

As you can imagine, there’s hardly a queue of fund managers itching to feature on what is essentially the dog house page.

Attempts to dress up this account of ‘how I got it all so wrong’ as a cathartic exercise are sometimes entertained, but for the most part, getting anyone on board is a pretty painful process.

This month however, I escaped all that. In fact I was shocked by the rapid take-up of the interview request. This to me signalled one of two things.

A) this guy is swigging his final drink at the last chance saloon, or B) he is adamant he’s about to make a comeback. It turned out to be the latter.

Peter Kirkman is the previously Citywire AAA-rated manager of JP Morgan’s Global Consumer Trends fund. I say previously as our latest data crunch highlighted the fact that he has slipped down the global equity fund manager performance table, losing two of those As in the process.

Despite the slide, an A rating still puts him in an elite group of top managers Europe-wide.

Having returned 61.9% over three years to the end of December last year, his longer-term track record is impressive, and beats the FTSE World TR index by more than 10%.

It’s when we look at his more recent performance however, that the cracks begin to show. 2011 was clearly a dire year for the fund with losses of over 20% at its lowest point; 8% more than the market.

China crisis

So what went wrong? In one word, China. The whole hard vs soft landing debate gained traction towards the back end of last year as investors grew increasingly jittery over the ability of the world’s second largest economy to sustain its rapid growth.

Kirkman, having doubled his emerging market exposure after the big inflation induced sell-off in Q1 2011, was particularly vulnerable to the second bout of panic which followed in September.

‘September was awful, we got hit very hard.’

Bearing the brunt of a negative wave of sentiment, he witnessed the valuations on a host of his top China names collapse, with some holdings trading at levels way below the worst point of the crisis in 2008.

‘We had some real estate names which lost 30-40% in a month, some of China’s retail names such as Ports Design, which is one of my local brand companies, also got de-rated very hard in the last quarter.

‘The PE went from 20 times to nine times so we’re talking huge multiple contractions here,’ he says.

It made for a tough end to the year but undeterred, Kirkman used the blind panic to go on another buying spree….No wonder he was so keen to take my call.

‘At 28% I’ve now got a record China weighting, it’s an aggressive position and importantly, this is not an EM fund. It’s a global fund. We’ve had much less than 10% in China in the past but it’s about taking the best opportunities structurally and that’s definitely investing directly into EM right now.’

He says he has also ventured back into India, taking his exposure up to 5% in the country. A further 3% is invested in other emerging markets, taking the fund’s entire EM weighting up to 35%.

Examples of some of the names he is now holding include Chinese property company Agile, again a name which has ricocheted up and down the valuation spectrum.

‘Year to date it’s already up 35-40%, so you can see this stuff really has been quite volatile, more than it should have been but that’s the great opportunity as I suspect that was the bottom for most companies, just at the end of September last year.’

Since then he says the market has bounced hard, struggled a little bit in November and December before ‘running very hard’ into January this year.

He sees particular opportunity in mid and small caps across emerging markets and expects that as risk appetite returns, as it has done in January, these companies will start to get re-rated quite rapidly.

‘You’ll start to see things moving 10-15% a day,’ he says.

Déjà vu

It’s hard to know what to make of predictions such as these especially as no two fund managers I meet seem to share the same view on China. But perhaps Kirkman can speak with such clarity as he’s been here before.

Following the financial crisis in 2008, he bought aggressively into EM, a strategy which played out particularly well for him in 2009, and which drove him to attain that Citywire AAA rating.

Second time around, he admits he moved too early which has served to put a dent in an otherwise pretty impeccable track record.

‘You can never know the exact timing on this stuff. If you can see a catalyst it will be too late.The bigger issue for me is when I see that great structural growth story with cheap valuations; I know that works. When it works is always the hard bit, but I worry less about that as I know it comes right eventually.’

He says just as he had to patiently wait for his bold move to pay off in the aftermath of 2008, the same is true for today.

Reinforcing his convictions

A recent trip to Bejing cemented his bullish view.

‘It’s unbelievable how well things are going. Everything was dominated by foreign brands. From Hello Kitty through to Gucci, Next, Starbucks – it’s a proliferation of foreign brands.

That’s the biggest advantage western companies have got, they can really win in these markets,’ says Kirkman.

So it’s not just about the domestic plays, which is why global leaders also feature prominently within the Global Consumer Trends fund’s portfolio. The likes of Richemont, Swatch and Louis Vuitton in Europe and Apple and Cisco in the US are key holdings.

He’s also bullish on global healthcare companies such as GlaxoSmithKlein and Sanofi.

‘I’m a big believer in healthcare spending, even though governments are increasingly reluctant to pass it. I’m very bullish on healthcare as a demographic story.’

While Kirkman may be putting last year’s poor performance behind him, how are his investors feeling about it, have they been supportive?

‘I think people understand what I do, they understand that I take a lot of risk relative to the MSCI World so we haven’t really seen any outflows. They know I have a lot of my own money in it, I seeded the fund so I’m still one of the biggest holders. I think that says a fair amount about my conviction.

‘Clearly last year was a year to forget but that’s all part of the fun of being an investor.’


Since the launch of the JP Morgan Global Consumer Trends fund in 2008, Kirkman has pounced on opportunities granted by the market to top up on cheap emerging market names. His latest foray has seen him get burnt as sentiment overtook fundamentals but I suspect by the time this issue hits desks he’ll have seen a flurry of re-ratings, the only question is how long will those ratings last?

Structurally the emerging consumption story is watertight, in practice though it’s a lot less plain sailing. Now with a record China overweight, expect more volatility to come.

Amy Williams, Deputy Editor, Citywire Global.

This article first appeared in the Citywire Global February 2012 print edition.

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