Material produced by Kepler Trust Intelligence should be considered a marketing communication, and is not independent research. Source: Morningstar

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1 1 Material produced by Kepler Trust Intelligence should be considered a marketing communication, and is not independent research. Summary is an actively managed portfolio of stocks listed in China, including Hong Kong, and Taiwan. Stocks are selected on a bottom up basis for their long-term growth potential, and the portfolio is tilted to domestic Chinese consumption. Managers Howard Wang and Rebecca Jiang are able to call on the research of dedicated sector specialists focused on China as well as the industry specialists in the wider GEMs team. JPMorgan now has analysts on the ground in Shanghai to add to the team in Hong Kong. Performance was particularly strong in 217 thanks to the bias to consumption-driven sectors, and Howard and Rebecca continue to find long-term growth ideas here and in information technology and healthcare companies. The trust does pay a dividend, and although it is not a focus of the trust the board aspires to make it a consistent payment by building up a revenue reserve. Gearing is used opportunistically, and has built up steadily to 17 over the past year. Although alpha generation has been strong over the short and long run, the trust narrowly survived a continuation vote in January in which institutional value investors voted against the resolution. The discount has moved out since then to around 14, close to that of the other Chinese-focused trust, Fidelity China Special Situations. The fund is tilted to mainland China and the team expects this to become more so in the future; last year JPMorgan opened an office in Shanghai making them the first asset manager to do so. The intention is to build an analyst team there over time to take advantage of the growing opportunities in the domestic market. As we discussed in this week s strategy piece, the introduction of A-Shares into the MSCI mainstream indices is indicative of the growing integration of the domestic Chinese economy into the global financial system and may bring with it increasing liquidity and investor attention. JPMorgan has been investing in the A-Shares market since 26. The exposure of the portfolio here has been growing markedly. As of the last annual report, in September 217, the trust had 19 of NAV in China A-Shares, up from 11 a year previously. Today it stands at roughly 3 and the team expects it to rise, although the current self-imposed limit is 5. In two to three years JPMorgan expects its analysts to cover 25 to 3 A-Share stocks, double the current amount. The focus on domestic China has led to a tilt to small and mid caps and toward consumption-facing stocks, both of which are likely to remain features of the portfolio. As of the end of March, the company had significant overweights to consumer discretionary, healthcare and industrials, and underweights to telecoms, energy and utilities. : Sector exposure As at Portfolio is focused on fundamental, bottom-up stock selection, with the managers drawing on the research of a large team of analysts to identify the quality companies with the best long-term growth prospects. The portfolio is the best ideas of the emerging markets team in Greater China that is, mainland China, Hong Kong and Taiwan. The team s macro strategist, George Iwanicki, provides forecasts and outlooks used within stock valuation models, but the focus is on picking the best companies from a bottom-up perspective. Environmental, social and governance (ESG) factors are considered within the research process on 4 stocks, including 14 A-Shares. The analysts produce forecast EPS and dividend growth models for the stocks under consideration and rank candidates on a one to five scale, where one is a strong buy. Industrials Energy Communication Services Technology Utilities Healthcare Consumer Defensive Basic Materials Consumer Cyclical Financial Services Real Estate The fund is also underweight IT, which is a result of its selfimposed limit of 1 on single stock holdings. Tencent and Alibaba make up 28 of the index together, so the trust has been structurally underweight here. Although this hurt it in 217, it still outperformed, as we discuss below.

2 2 Within technology the fund also has significant exposures to the Apple supply chain, although this has been trimmed after disappointing demand for the iphone X the aim is to ensure this part of the portfolio is less dependent on this one customer. The team works with loose limits towards industry and country allocation, and the portfolio is managed with the benchmark in mind. The trust has an active share of 63 and a tracking error of 5. The team is unafraid to have an optically high valuation on its portfolio if it feels it is justified by the growth prospects: although the forward P/E (a valuation measure) on the portfolio was 15.5 times compared to 12.5 times for the index in March, three to five year forecast EPS (earnings per share) growth and ROE (return on equity) valuation measures were both substantially higher. The managers look to take a long-term view on stocks, and believe that over a five to ten year view it is EPS growth and dividends which determine total return. In the short term, valuations and foreign exchange may predominate, but investors have to sit through periods in which this happens to get their reward. For this reason there were no major changes made to the portfolio following the sell-off in Q1 218 and the emergence of trade war threats between the US and Chinese governments, with the managers believing that the long-term prospects for the Chinese market and their companies were not affected. Over the past year the trust has done particularly well, with NAV up 31 (price 3) compared to 27 for the index In fact, it was the calendar year of 217 that was particularly good for the trust, following on from a weaker 216 in relative terms. The trust has outperformed the index each year from 212 to 215 too. This was due to an overweight to consumer cyclicals and an underweight to telecommunication stocks, as well as good stock picking in financials and industrials. In the first quarter of 218 some of last year s big winners sold off, which caused the fund to marginally underperform. 75 : Performance versus indices from to Jul '17 Oct '17 Jan '18 Apr '18 (NAV) (Price) : Discrete calendar year returns Returns Over five years the trust s NAV has significantly outperformed the index, gaining 18 compared to 91 from its peers. Price returns were 12. Investing in China rather than Asia Pacific ex Japan would have been a good decision: the average investment trust in the broader region is up only 53 over that time : Performance versus indices from to (NAV) (Price) (NAV) Peer group The fund has generated significant alpha against the benchmark over five years, putting it in the top ten of its peers, defined as those China specialist trusts in the closed-ended AIC or open-ended IA universes. Some of those with higher alpha numbers are smaller-company focused, so should find it easier to outperform the broad benchmarks and generate higher alpha. The Sharpe ratio of.78 also puts it in the top half of its peers. The fund is significantly smaller than its closed-ended Fidelity peer, but close to the middle of the pack in the wider peer group. Launched in 1993, the trust is by some way the oldest in the combined sector. The average manager tenure is 9.4 years,

3 3 meaning the team has more experience than all but six of its 4 competitors. NAME PEER GROUP OF CHINA SPECIALIST FUNDS INCEPTION DATE MANAGER NAME Fidelity China Special Ord 19/4/21 Dale Nicholls Royal London/Henderson China Opportu Pen Sanlam/Invesco Perp HK&China 6 Life Matthews Asia Funds China Sm Coms A Acc Baillie Gifford Greater China A Acc 6/4/26 Charles Awdry; May Ling Wee; 4/3/1998 Mike Shiao;Lorraine Kuo; 29/2/212 21/5/29 Kenichi Amaki;Tiffany Hsiao; Mike Gush;Sophie Earnshaw; SE/Jupiter China Pen 3/3/21 Ross Teverson Janus Henderson Hrzn China X2 Matthews Asia Funds China Div A Acc 25/1/28 Ord 19/1/1993 Fidelity China Consumer A Acc Charlie Awdry;May Ling Wee; 31/1/213 Yu Zhang;Sherwood Zhang; 14/9/211 Hyomi Jie Howard Wang;Rebecca Jiang;Shumin Huang; Emerson Yee Shun Yip; PRIMARY PROSPECTUS BENCHMARK GR MSCI AC Zhong Hua GR MSCI AC Zhong Hua NR Small Cap NR MSCI Golden Dragon NR GBP GBP EUR GR GBP ALPHA 5 YR (QTR-END) RISK SHARPE RATIO 5 YR (QTR- END) RISK TRACKING ERROR 5 YR (QTR-END) RISK R-SQUARED 5 YR (QTR- END) RISK CE OE OE OE OE OE OE OE CE OE OPEN OR CLOSED ENDED Dividend The trust focuses on capital gains, with income a residual, therefore the payout has been inconsistent. The board aspires to deliver a stable dividend in the fullness of time. This will be helped by the decision taken last October to allocate 75 of expenses to capital and 25 to revenue, rather than the 1 to revenue as previously. As a result, net income will be higher and the payout will be able to rise with a greater likelihood of reserves being built up to maintain the dividend in lean years. However, the trust is not aimed at income seekers, with JPMorgan running portfolios with an explicit income aim within its stable of emerging market investment trusts. At the time of writing, the trust offers a historic yield of.5. Management The company has been managed from Hong Kong by Howard Wang, head of the greater China team, and Shumin Huang, head of research for Greater China equities, since 26. Rebecca Jiang joined the team last year. They sit in the EMAP Equities team headed by Richard Titherington. Under Shumin there are ten analysts responsible for covering the different sectors of the Greater China market with an average of 12 years experience. The managers can also draw on the work of the emerging markets sector specialists at JPMorgan. Howard has 23 years experience, Shumin 26 and Rebecca 13. Gearing of NAV : Gearing From to

4 4 The trust has the ability to gear up to 2 of NAV and hold up to 1 in cash net. Gearing is short term through a 3m facility. Borrowing is used when the bottom-up opportunities dictate it rather than as a call on the macro. Gearing levels increased through 217 as the rally in the Chinese market continued and is now at 17, its highest in over five years according to Morningstar data. Discount The board has the ability to sell and repurchase shares in order to control the discount, although it does not have an explicit target range. It last used the facility in March 217. During 217 there was a surge in investor sentiment towards China and the discount narrowed substantially, reaching 5 in November. There has been considerable volatility since then, and in fact the trust s discount has rebounded back to around 14, where it was just after the last repurchase. This puts it slightly narrower than the 15 of Fidelity China Special Situations, and JPMorgan Chinese has outperformed it in NAV terms over 12 months. : Discount / Premium Jul '16 Jan '17 Jul '17 Jan '18 The narrowing of the discount at the end of last year may be explained by anticipation of a continuation vote at the AGM that month was narrowly won: 44 of votes were cast against the resolution. The board noted that the votes against came largely from two shareholders with whom it remains in dialogue. City of London holds around 2 of the shares, down from 22 at the time of the AGM. The next vote is due in five years. Charges The fund has an OCF of 1.38, making it slightly more expensive than Fidelity China Special Situations, the other China specialist trust. This includes a 1 management fee, the same as Fidelity, and one would expect the other costs to make up a slightly higher percentage on a smaller fund. On a KID RIY basis the trust looks slightly cheaper, however; on this metric its charges are 2.34 compared to 2.74 for the Fidelity trust.

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