Utilico Emerging Markets Trust goes on buying spree

Despite a ‘challenging’ six-month period, the trust’s quarterly dividends remain fully covered by income.

Utilico Emerging Markets Trust (LSE:UEM), one of interactive investor’s Super 60 choices, has added seven new holdings in the last six months as it reports double-digit net asset value (NAV) growth despite difficult markets and a “challenging” half-year.

In its results for the six months to 30 September, the trust reported a NAV total return per share of 12.3%. Its share price total return for the same period stood at 10%. 

The performance lagged the MSCI Emerging Markets total return index of 24.2%, but the trust comfortably outpaced the MSCI Emerging Markets Utilities index return of 1.5%. 

The portfolio invests in utilities and infrastructure assets, with the manager recently shifting 11.6% of the portfolio to high-growth data services and infrastructure.

The trust’s gross assets increased from £461.4 million to £481 million in the half-year, reflecting gains on both the revenue and capital accounts, as well as increased gearing.

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Over the period, the trust added seven new positions into its top 20 holdings, and exited some positions that held up well during the market crash. New holdings include a South Korean data centre operator, the Colombian stock exchange, a Malaysian e-government operator, and a Brazilian toll road operator.

Sales include a Brazilian water and waste management company and a Brazilian wind and solar farm operator. It also scaled back holdings in Romanian gas transmission business Transgaz, Indian electricity company Torrent Power; and APT Satellite Holdings, a Hong Kong-based Asian satellite company.

Maintaining dividends

The trust’s board expects to maintain its quarterly dividend payout at 1.925p per share up to the third and fourth quarter of its financial year (which ends on 31 March 2021), and notes that dividends remain fully covered by income. However, the board stands ready to use revenue or capital reserves to maintain dividend payments if needed.

The share price discount on the trust widened from 11.2% in March to 13.2% at the end of September and “remains above discount levels the board would wish to see”. The investment managers have continued buying back shares for cancellation to bring in the discount. 

“As investors seek opportunities in technology and healthcare, it is frustrating to see the underperformance of UEM’s asset class share prices, especially given the strong performance by most of UEM’s holdings,” says Charles Jillings, investment manager of the trust. “However, the third-quarter investee earnings, which are now being reported, have even surprised us in their earnings strength.

“UEM’s portfolio consists of a diverse range of companies that are often under-represented in the MSCI. The strength of our sector and country knowledge built up over decades has given us an ability to continue to identify these investments, despite Covid-19 and global lockdowns. Despite unprecedented challenges due to Covid-19, UEM’s investment objective to provide positive long-term absolute returns has not changed, and we remain optimistic to uncover compelling investments that offer excellent returns.”

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ii’s view 

Utilico Emerging Markets Trust is one of interactive investor’s Super 60 Funds. We like that the trust gives investors exposure to the infrastructure theme in Asia, Latin America and emerging Europe, while enjoying a yield of more than 4%.

The trust’s investment universe is companies and sectors displaying the characteristics of essential services or monopolies – such as utilities, transport infrastructure, communications and companies with a unique product or market position – which gives it considerable defensive qualities.