Utilico Emerging Markets (UEM) has reported its annual results for the year to 31 March 2025. The trust, which invests in infrastructure and utilities across emerging markets, delivered a net asset value (NAV) total return of -2.9% over the year, lagging the MSCI Emerging Markets Index return, which returned 5.7%. UEM’s share price total return was 1.8% during the period reflecting a narrowing of the discount to net asset value (NAV) from 19.3% to 16.0% during the period.

The trust’s underperformance over the year was attributed mainly to two factors: foreign exchange losses, particularly the 14.5% depreciation of the Brazilian Real (Brazil accounts for 21.8% of the portfolio), and a £6.5m write-down in the valuation of unlisted holding Petalite, an electric vehicle charging technology business.

Petalite alone detracted 1.5% from NAV total return, while other Brazilian holdings, such as JSL and Serena Energia, also struggled amid weak sentiment towards small-cap stocks and rising domestic interest rates.

The trust’s ongoing charges ratio remained steady at 1.5%.

Long-term performance remains robust

Over the three and five-year periods to 31 March 2025, UEM’s NAV total returns of 11.8% and 67.2% significantly outpaced the MSCI EM Index, which returned 6.3% and 40.8% respectively. Since launch in 2005, UEM has delivered a NAV total return of 427.6%, equivalent to an annualised return of 8.8%, compared to the index’s 303.5% (7.2% p.a.).

Dividend growth continues

Revenue earnings per share rose 12.7% to 9.95p, enabling the board to increase the full-year dividend to 9.125p, a rise of 6.1%. This marks the tenth consecutive year of dividend increases for UEM, placing it among the Association of Investment Companies’ “next generation of Dividend Heroes.” It remains the only trust in the Global Emerging Markets sector to achieve this.

The dividend was fully covered by earnings, and the board reaffirmed its commitment to delivering rising distributions over time, supported by earnings or reserves where appropriate. UEM’s dividend yield now stands at 4.2%, up from 3.9% a year earlier.

Portfolio positioning and megatrends

The managers continue to focus on four core investment themes:

• Social Infrastructure (32.2% of the portfolio): Includes investments in essential services such as water, sanitation, and transport. Notable contributors included Manila Water (+40.8% share price), and TAV Airports (+36.0%).
• Energy Transition (25.6%): While slightly down from 31.8% the previous year, this theme remains a significant part of the portfolio. Key holdings include Alupar Investimento and IndiGrid, both focused on electricity transmission.
• Digital Infrastructure (25.0%): The fastest growing allocation, up from 21.8% last year. Performance was led by SUNeVision (+169.7%) and FPT Corporation (+18.8%).
• Global Trade (17.2%): Exposure reduced from 21.5% due to the exit of Santos Brasil and Power Grid Corporation of India. International Container Terminal Services remained a strong contributor.

Buybacks and balance sheet

To help manage the discount, UEM repurchased 4.3m shares (2.3% of share capital) at an average price of 221.36p, costing £9.6m. These buybacks added 0.4% to NAV per share. Since inception, the trust has repurchased over 90m shares, representing more than 30% of current capital.

Gross assets stood at £497.4m at the year-end, down from £522.9m the previous year. Net gearing was 2.8% following the drawdown of £17.5m under a new £50m multi-currency loan facility with Barclays.

Changes to unlisted exposure

The trust’s exposure to unlisted investments fell to 2.7% of the portfolio (£13.4m), down from 4.5% (£23.1m) last year. Following investor feedback, the board confirmed that no new unlisted investments will be made except in exceptional circumstances. Petalite remains the largest unlisted position, now valued at £3.6m.

Management and board developments

In January 2025, Jacqueline Broers was promoted to co-manager alongside long-standing manager Charles Jillings. Broers has worked on the trust since 2010.

On the board, Mark Bridgeman succeeded John Rennocks as chairman at the end of 2024. Nadya Wells joined as a new non-executive director and chairs the management engagement c+ommittee. All directors will stand for reappointment at the AGM on 16 September 2025.

Looking ahead to the 2026 continuation vote

UEM’s articles require a continuation vote every five years, with the next one due at the 2026 AGM. The trust has outperformed the MSCI emerging Markets Index in each of the last four years, delivering a 6.5% annualised NAV return versus a 0.3% annualised fall for the index over the same period.

The board says that it is engaging actively with shareholders ahead of the vote and is also reviewing its current 12.5% discretionary tender mechanism as part of broader discount control measures.

Outlook

The managers remain confident in the long-term potential of the trust’s strategy, despite ongoing macro and geopolitical uncertainty. They highlight the increasing interest in emerging markets as investors begin rotating away from US equities and note that emerging market valuations remain attractive. UEM’s focus on essential infrastructure assets with predictable cash flows and growth potential continues to underpin its investment case.

[QD comment MR: While UEM’s short-term NAV return is disappointing, its outperformance over the last three- and five-years is robust and shareholders may wish to give consideration to this as the continuation vote approaches in 2026. The portfolio’s focus on infrastructure and utilities in emerging markets gives it a clear identity and differentiates it from peers with more conventional benchmarks. The unlisted holdings have been a drag on performance recently and shareholders will likely welcome the board taking their shareholder feedback on this exposure seriously.

A tenth consecutive dividend increase – fully covered by earnings – is also noteworthy, particularly given the headwinds from currency and unlisted holdings this year. It illustrates why UEM’s strategy is well-suited to a closed-ended structure.

As we approach the 2026 continuation vote, much will depend on investor sentiment toward emerging markets as an asset class. But if investors are looking for a consistent, income-generating option in a volatile space, UEM’s offering still stands out. For those able to look through the noise, UEM’s ongoing share buybacks are NAV-accretive for remaining shareholders and should help with discount control.]