Investment trust Utilico Emerging Markets offers shareholders a mix of dividend and capital return.
It does this by investing in companies that provide the infrastructure needed to keep the world’s developing economies growing – everything from power lines and railways to ports and data centers.
It’s an unusual investment approach, but since the trust was founded almost 19 years ago it has served investors well, especially in terms of income.
Apart from 2015, when it maintained its annual dividend, income payments have increased every year.
Encouragingly, the quarterly figures it has paid so far in the current financial year to the end of March are slightly higher than the previous year, indicating that another year of dividend growth is expected.
In terms of overall investment performance, the three-year returns of 19 percent compare favorably to the global emerging markets return of 14 percent.
It has underperformed in the past year: a return of 5.3 percent against a group average of 10.6 percent.
Utilico Emerging Markets is listed on the London Stock Exchange and has assets valued by the market at £431 million. It is run from London by Charles Jillings of asset manager ICM, assisted by two colleagues.
Four investment themes underpin the portfolio: the need for emerging markets to embrace the energy transition (to wind and solar), improve social infrastructure (especially as economies urbanize), increase exports (e.g. raw materials and food ) and digitize (through the construction of data centers and internet networks).
Eighty percent of the 78 companies it invests in provide the trust with income.
The companies are located around the world, with almost a quarter of assets in Brazilian companies (the trust will not invest more than 35 percent in any country).
“Brazil benefits from improving infrastructure,” says Jillings. ‘It is the world’s largest producer of soybeans, the number three producer of coffee beans and is rich in raw materials such as iron ore and oil.’
He adds: ‘Many of these goods end up being exported – and as exports grow it means there is a need for better infrastructure such as trains and ports.’
The trust’s top twenty include port operator Santos Brasil Participacoes and railway company Rumo.
Jillings is also excited about the investment opportunities in Mexico, prompted in part by a recent visit to the country.
He says it is benefiting from a boom in ‘nearshoring’ – with many companies supplying the US market now favoring closer commercial locations in Mexico, taking advantage of the country’s cheap labor force and sidestepping geopolitical risks elsewhere in the world .
The trust’s largest Mexican holding is logistics company Grupo Traxion. “We invested in it three years ago,” Jillings says.
‘The management team is entrepreneurial and the company will grow.’
The trust has a few anomalies. Firstly, it has a small stake in British electric vehicle charging start-up Petalite.
Jillings says the stake – unlisted – gives the trust exposure to an important trend (energy transition) that is both difficult and expensive to access in emerging markets such as China and South Korea.
In addition, a large portion of its shares in Vietnam are through the London-listed trust VinaCapital Vietnam Opportunity.
The total annual charges amount to 1.4 percent and the income paid to shareholders corresponds to approximately 3.9 percent per year. The stock market identifier is BD45S967, and the ticker is UEM.