Mark Dampier: Emerging-markets fund can pay dividends despite risks
Saturday 15 September 2012
I have been a fan of emerging markets for more than 25 years. In fact, I set up a monthly savings plan into an emerging markets fund for my son when he was born 22 years ago. It has worked out extremely well so far – despite many people at the time saying I was throwing money down the drain. Back then, emerging markets were unpopular, having had a dismal run. However, they turned out to be a great growth opportunity for the next couple of decades.
It was always frustrating, though, that they did not satisfy those who wanted an income from their investments. Rather than pay dividends, emerging-market companies often reinvested cash in projects they believed would produce better returns for shareholders. While it meant the prospects for capital growth were excellent, income was hard to find. However, times have changed and a dividend culture has taken hold across many parts of the developing world.
Today there are proportionately more companies paying dividends in emerging markets than in developed markets, with Latin America and Asia particularly bountiful hunting grounds. In fact, emerging market companies on the whole are growing their dividends faster. It is now possible to capture the potential of emerging markets and the attractive dividends of 'equity income' in a single fund. Newton Emerging Income Fund, launching on 4 October aims to do exactly this.
Newton has been well aware of the power of dividends for many years. In the 1980s, the top-performing Newton Income and Newton Higher Income funds were popular with investors. They realised they could expand this further, launching Global, European, and, most recently, the highly successful Asian Income fund under Jason Pidcock. The new Emerging Income fund will be run by Mr Pidcock alongside Sophia Whitbread and contains 30 per cent commonality with Asian Income.
The managers believe a dividend-focused approach to investing in emerging markets has benefits for all investors. Paying dividends is a sign of strength and disciplined management. It means companies have to consistently generate earnings and manage their cash prudently. Such companies often have significant potential for growth too.
Ms Whitbread and Mr Pidcock are looking for growth in dividends rather than simply targeting firms with the highest payouts. By considering the likely future earnings of a company, they can assess how dividends might be sustained or increased over time. The aim will be to yield at least 15 per cent over the benchmark (the FT All World Emerging Index), which should mean the fund yields about 4 per cent at the outset.
The portfolio will be split roughly equally between Asian emerging markets and areas outside Asia. At present the team is most positive on South America, South-East Asia and South Africa. India, however, is likely to start with a zero weighting because of low dividend payouts there, as will Russia because of concerns over the sensitivity of stocks to the oil price, as well as general standards of corporate governance. The managers can also buy developed-world shares providing most of the firm's profits come from emerging markets.
In terms of sectors, real estate, telecoms and consumer goods will be prevalent. The fund is likely to be positioned in well-established larger companies, which allow sufficient liquidity to trade in and out.
You may believe that the emerging-market income story is a flash in the pan. After all, companies could revert to a policy of low payouts, electing instead to reinvest cash by buying rivals or setting up new businesses. However, Mr Pidcock thinks that is unlikely. He prefers consolidated markets and industries where the scope for acquisitions is limited. He also believes companies are alert to the growing influence of domestic pension funds, which are increasing institutional demand for income.
An investment in this area is high risk, so a long-term horizon is essential, allowing time to ride out the inevitable ups and downs. However, if you are looking to diversify an income portfolio and gain exposure to some of the world's fastest growing economies, or you are simply looking for the best long-term returns from emerging markets, this new fund could be of interest.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial advisor and stockbroker. For more details about the funds included in this column, visit www.h.l.co.uk/independent
- 1 Rape threats, death threats and a police investigation after video poking fun at an Islamic Party in Malaysia goes viral
- 2 Katie Hopkins attacked me on Twitter — so I reported her to the police for inciting racial hatred
- 3 Gamers confess the worst things they've done in The Sims
- 4 6-year-old writes ice cold Valentine's card to his stepmother
- 5 Syrian child photographed 'surrendering to camera because she thought it was a gun'
Katie Hopkins attacked me on Twitter — so I reported her to the police for inciting racial hatred
Street preacher quoting from the Bible fined for calling homosexuality an 'abomination'
Woman filmed launching racist tirade against men on the Tube for speaking in 'own lingo'
David Cameron calls Labour 'hopeless, sneering socialists' while announcing 7-day NHS plans
Revealed: Putin's army of pro-Kremlin bloggers
Katie Hopkins reported to the police for race hatred by Labour MP Simon Danczuk after tweet about Pakistani men
iJobs Money & Business
£20000 per annum + commission: SThree: Sthree have an exciting opportunity for...
£18000 - £32000 per annum: Recruitment Genius: A Telesales Executive is requir...
£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...
£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...
Day In a Page
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000