Utilico Emerging Markets (UEM) has celebrated its 20th anniversary with a strong year for performance and the declaration of a 2.5p per share special dividend on top of shareholders’ 30.2% total annual return.
Fund managers Charles Jillings and Jacqueline Broers delivered a 25.9% total underlying investment return for the year to 31 March that lagged the 26.8% rally in the MSCI Emerging Markets index but was a good result for a portfolio of utility and infrastructure stocks .
Chair Mark Bridgeman said: “Given the portfolio’s underexposure to direct artificial intelligence (AI) and technology investments particularly within Asia, a sector that has seen significant euphoria this year, this serves as a compelling endorsement of UEM’s highly differentiated benchmark agnostic emerging markets portfolio.”
Shareholders’ actual return of 30.2% beat the benchmark as the gap, or discount, between the share price and the net asset value (NAV) of its investments narrowed to 13.6% from 16%. Since the financial year-end it has come in further to 10%.
That was in response to improved demand as investors looked to reduce their exposure to the US and UEM bought back 10.8m of shares, equivalent to 5.8% of the trust’s capital, at a cost of £27.6m.
In addition, the board put in place a conditional tender offer that will see it buy back up to a quarter of its shares if NAV returns fall behind the MSCI Emerging Markets index in the five years to July 2030.
On current form UEM should avoid that. In the five years to 31 March, the portfolio increased by 61.8% beating the benchmark’s 25.4% return. Since launch in 2005, its total investment return of 564.2% smashed the 411.7% advance of the index.
A rush by Brazilian companies to pay higher dividends ahead of a rise in withholding tax in January, saw revenue earnings per share leap by 36.4% to 13.57p. In response the board declared 9.585p per share in quarterly dividends, up 5% on the previous year and covered by earnings, the 11th consecutive year it has raised pay-outs. The 2.5p special dividend mops up the additional income and will be paid on 14 August. It represents an extra £4.3m for shareholders and will bring total payments to shareholders to £21.4m.
“By choosing to pay both a higher level of quarterly dividends and a special interim dividend, the board seeks to pass on the benefit of the exceptionally high level of dividends received from a number of the company’s investments, while also safeguarding the company’s ability to continue to progressively grow the quarterly dividend at a sustainable rate in the future, in line with the board’s objectives,” said Bridgeman.
Our view
Richard Williams, senior analyst at QuotetdData, said: “Although UEM marginally lagged the MSCI EM Index over the year, the performance is arguably more impressive than the headline comparison suggests, given that benchmark gains were heavily concentrated in Asian technology and semiconductor stocks. Instead, UEM’s focus on utilities, transport, energy and social infrastructure, as well as the infrastructure enabling digitalisation in emerging markets such as data centres and fibre networks, bore fruit and highlights the investment case for emerging market infrastructure – including defensive cash flows, inflation protection and exposure to long-term economic development. This is not fully reflected in UEM’s rating.”
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