Investment trust Utilico Emerging Markets delivers shareholders a mix of dividend and capital return.
It does this by investing in companies that provide the infrastructure necessary for the world’s developing economies to keep growing – everything from power lines and railways through to ports and data centres.
It’s an unusual investment approach, but it has served investors well since the trust launched nearly 19 years ago, especially in terms of income.
Apart from 2015, when it maintained its annual dividend, the trust has grown income payments every year.
Encouragingly, in the current financial year to the end of March, the three quarterly divis it has paid so far are slightly ahead of the previous year – indicating that another year of dividend growth is expected.
In terms of overall investment performance, three-year returns of 19 per cent compare favourably against its global emerging markets peer group of 14 per cent.
Over the past year, it has underperformed – a return of 5.3 per cent against a group average of 10.6 per cent.
Utilico Emerging Markets is listed on the London Stock Exchange and has assets valued by the market of £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 energy transition (to wind and solar energy), improve social infrastructure (especially as economies urbanise), increase exports (for example, commodities and food) and digitalise (through the building of data centres and internet networks).
Eighty per cent of the 78 companies it invests in provides the trust’s income.
The businesses are located worldwide, with nearly a quarter of the assets in Brazilian businesses (the trust will not invest more than 35 per cent in any one country).
‘Brazil is a beneficiary of improving infrastructure,’ says Jillings. ‘It’s the world’s number one producer of soybeans, number three for coffee beans and is rich in resources such as iron ore and oil.’
He adds: ‘Many of these goods end up being exported – and as exports boom, that means there is a need for better infrastructure such as trains and ports.’
Among the trust’s top 20 holdings are port operator Santos Brasil Participacoes and rail company Rumo.
Jillings is also excited about investment opportunities in Mexico, triggered in part by a recent visit to the country.
He says it is benefiting from a boom in ‘nearshoring’ – with many businesses supplying the US market now preferring to have closer commercial locations in Mexico, taking advantage of the country’s cheap labour force and side-stepping geopolitical risks elsewhere in the world.
The trust’s biggest Mexican holding is logistics firm Grupo Traxion. ‘We invested in it three years ago,’ says Jillings.
‘The management team is entrepreneurial and the business will grow.’
The trust has a few anomalies. First, it has a small holding in UK start-up Petalite, an electric vehicle charging company.
Jillings says the stake – unlisted – gives the trust exposure to a key trend (energy transition) that is both difficult and expensive to access in emerging markets such as China and South Korea.
Also, a big chunk of its Vietnam holdings is through London-listed trust VinaCapital Vietnam Opportunity.
Total annual charges are 1.4 per cent and the income it pays shareholders is equivalent to around 3.9 per cent a year. Its stock market identification code is BD45S967, and its ticker UEM.
