Emerging markets are starting to stage a comeback within equity markets and investors looking for income should also be paying attention to the region.
The MSCI Emerging Markets index has finally moved into positive territory, following the sell-off in the second half of 2013, delivering a positive 2.59 per cent for the year to date to June 25 2014, according to FE Analytics.
But interestingly of the five IMA-listed funds with ‘emerging market income’ in the title, three have outperformed the MSCI Emerging Market index, with the JP Morgan Emerging Markets Income fund delivering the best return of 4.32 per cent for the period.
This suggests that while emerging market equities are recovering as a whole, investors taking advantage of the dividends in an often overlooked region are getting the upper hand.
Figures from the Henderson Global Dividend Index show that emerging markets delivered approximately $13.7bn (£7.9bn) of dividend payments in the first quarter of 2014. This is ahead of Japan, at $2bn, and the Asia-Pacific region, with a dividend total of $11.6bn in the first three months of the year.
More telling is the fact that emerging market dividends rose just 7 per cent in Q1, as the market sell-off in late 2013 hit dividend payments, which lags behind the growth of its developed market peers such as North America and the UK. This suggests there is more income to come from emerging market companies, especially as many countries are tightening regulation, corporate governance and adopting shareholder-friendly practices.
Speaking at the BNY Mellon Investment Conference in April, Jason Pidcock and Sophia Whitbread, co-managers of the Newton Emerging Income fund, noted that since 2000 emerging market economies have been offering greater stability for dividend payouts, having grown by roughly 4 per cent more than their developed market peers.
Ms Whitbread added: “Dividends can indicate a regard for corporate governance, which cannot always be taken for granted in emerging markets. At the same time, emerging markets offer potential for high economic growth, high earnings growth and dividend growth, which can be driven by that earnings growth.”
With emerging market equities looking to be on the rise once again, investors are starting to move back into the asset class, with the IMA recording net retail inflows into the Global Emerging Markets sector of £21.1m in April, more than double the £10m recorded in March.
Nyree Stewart is features editor at Investment Adviser
