Utilico Emerging Markets 06 September 2019
Disclosure – Non-substantive Research
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. With this commentary, Kepler Partners LLP does not intend to influence your investment firm's behaviour.
To provide long-term total return by investing predominantly in infrastructure, utility and related sectors mainly in emerging markets
Utilico Emerging Markets
Charles Jillings; Duncan Saville;
Association of Investment Companies (AIC) Sector
Global Emerging Markets
12 Mo Yield
Dividend Distribution Frequency
Latest Market Capitalisation
Latest Net Gearing (Cum Fair)
Latest Ongoing Charge Ex Perf Fee
(Discount)/ Premium (Cum Fair)
Daily Closing Price
Utilico Emerging Markets (UEM) offers a different set of exposures to the average emerging market fund, focusing on the infrastructure and utilities sectors and on Latin America rather than North Asia. The trust owns a portfolio of companies chosen for their strong positions in their industries, which should allow them to generate high shareholder returns over the long term, with an aim of harnessing the growth potential in the rise of the emerging markets middle classes.
The trust has performed strongly over the long term, with five year returns ahead of the index and peer group despite not being exposed to the fashionable, higher-growth sectors of information technology and consumer discretionary. The trust has tended to do better in down markets while making less than the market in rising markets, which is unsurprising given the bias to defensive sectors.
The more defensive sectors the trust invests in tend to pay higher dividends, and so the yield is significant, at 3.1%. However, the objective of the trust is to generate total returns, so income is not prioritised over capital returns. The dividend has been grown or held each year over the past decade, however.
The trust trades on a discount of 12.5%. This is tighter than the average for 2018, when emerging markets were out of favour, but wider than the five-year average of 10.8%. In 2018, UEM redomiciled to the UK from Bermuda, in an attempt to make the trust more attractive to investors and close the discount. The trust has also carried out regular buybacks when the discount widens into double figures.
The trust is managed by specialist fund manager ICM, and a team headed by Charles Jillings and Duncan Saville. The management team and directors have substantial shareholdings in the trust.
There is a performance fee, charged at 15% of the NAV total returns in excess of 8% (or the benchmark plus 2% when that is higher). There is a high watermark and the fee was last charged in 2017.
UEM offers attractive diversification from the dominant trends in active emerging markets funds: tech, consumer discretionary and North Asia. The focus on infrastructure and utilities could well prove beneficial if fears of a global recession prove founded. However, investors have to be comfortable with a high degree of exposure to Latin America. That region continues to experience political and economic disruption, which are unpredictable in their outcomes. It is worth noting that the company offers an admirable amount of transparency on the underlying portfolio and related information for shareholders online and in their reports and accounts.
|A tendency to outperform in rough markets||High sector and country exposures raise the downside risks as well as potential returns|
|Offers diversification to the consensus positions in tech and consumer stocks of EM funds||There is a performance fee which may deter some|
|A strong record of absolute returns attributable to a coherent strategy||the ownership structure is opaque|