Below are the four key points of its investment story.
1. The trust aims to generate an attractive long-term total return from a portfolio of emerging market infrastructure and utility equities.
Utilico Emerging Markets Trust (UEM) is focused on global infrastructure megatrends in emerging markets. Manager Charles Jillings and his team at ICM invest primarily in operational infrastructure and utility companies in emerging markets, which are benefiting from long-term growth trends. These businesses are generally underpinned by established regulatory frameworks supporting predictable and sustainable cash flows. UEM’s portfolio provides a relatively low-beta exposure to emerging markets. The trust has outperformed the MSCI Emerging Markets Index over the long term. Since the company was formed in July 2005, UEM has generated annual NAV total returns of around 9.5%.
2. The manager employs a diligent bottom-up stock selection process seeking undervalued companies with long-term growth potential.
Stocks are selected on a bottom-up basis following thorough fundamental research (including the construction of a detailed financial model and valuation targets) from an investible universe of more than 1,000 companies. Jillings takes a long-term approach avoiding short-term stock market noise and is benchmark agnostic. This is clearly evidenced by a notable overweight Brazilian exposure and a meaningful Chinese underweight exposure versus the MSCI Emerging Markets Index. The manager and his team travel frequently, meeting with company managements and visiting their businesses; they are supportive of UEM’s investee firms in terms of their capital requirements by participating in follow-on equity offerings and the trust is often among their largest international shareholders.
To mitigate risk, there is a series of internal investment guidelines in place (as a maximum percentage of gross assets at the time of investment): individual investment 10%; single country 35%; individual sector 25%; unquoted investments 10%; and top 10 holdings 60%.
3. Each of the trust’s holdings can be classified under one of four megatrends.
ICM has identified four growth megatrends in emerging markets and each of UEM’s around 80 holdings can be classified under one of these: energy transition, social infrastructure (referred to as infra), global trade and digital infra.
Energy transition includes electrification and decarbonisation projects and the shift to renewable energy. Social infra growth is being driven by societal changes as rising middle classes demand better quality services, while rapid urbanisation is driving the need for major investment in transportation, communication and internet services. Regarding global trade, there are opportunities in transportation and logistics, helped by the diversification of supply chains following the global pandemic and the increase in nearshoring in response to heightened geopolitical tensions. Digital infra is benefiting companies harnessing the integration of digital technologies across society.
4. UEM has a progressive dividend policy.
The trust pays regular quarterly dividends and the total annual distribution, which has been fully covered since FY16, has been increased or maintained every year since UEM was launched. More than 80% of the trust’s investee companies pay dividends, supporting UEM’s attractive yield.
