Genesis Emerging rules out dividends for now

Genesis Emerging Markets has published its results for the year ended 30 June 2016. The MSCI Emerging Markets (TR) Index fell 11.7% in US dollar terms over the year. However, for UK investors the dramatic weakening of sterling against the US dollar during the weeks around the EU referendum meant that in sterling terms the Index in fact gained 3.9%. Against this performance environment, the Fund’s net asset value per share (‘NAV’) increased from  GBP5.72  to GBP6.21  representing a return of 8.7%. The Fund’s share price rose by only 7.1%, however, as investors generally continued to exhibit some nervousness about potential returns from emerging markets.

Some of the Fund’s shareholders have raised the possibility of a dividend being introduced. With this in mind, the Board has been considering the Fund’s position on dividends, taking into account a range of factors. The Board is currently of the view that it would not be appropriate to propose a dividend to shareholders principally because in the past few years the Fund’s level of net income has not been sufficiently consistent to support a meaningful payment. The matter will, however, continue to be reviewed by the Board on an ongoing basis, with the intention of paying a dividend (or indeed buying back shares) in future years if an appropriate opportunity arises.

The managers point out that the Chinese market was one of the worst-performing over the year, and so its impact on the portfolio was the most significant driver of relative performance from a country perspective. The Fund’s underweight versus the benchmark added substantial value in the period, while avoiding state-owned financials including China Life Insurance (down 40%) and Bank of China (down 23%), and owning a variety of strongly performing holdings, including premium baijiu producer Kweichow Moutai (up 39%) and e-commerce company Alibaba (up 14%), also helped. Further performance gains were made in Thailand for stock-specific reasons – Thai Beverage (up 45%) experienced a turnaround in its beer business due to a new management team and Central Pattana (up 44%) benefitted from a variety of government infrastructure investments. On the negative side value was lost in Indonesia by being underweight in what was a strong market, and in Brazil where their holdings failed to keep pace with the recovery of the local market.

Value was added in a variety of sectors, particularly financials, consumer and IT, where one of the Fund’s largest holdings, TSMC, rose 35%. These gains were partially offset by losses in the materials sector, where Anglo American’s price falls in 2015 were responsible for a loss of 20% over the last twelve months, despite its share price almost trebling so far in 2016. Looking at individual stocks, the major contributor was SABMiller, which rose by 31% after accepting a bid by rival brewer AB InBev to acquire the company.

GSS : Genesis Emerging rules out dividends for now