Introduction
This compares favourably with its 2013 loss of 4.41 per cent following the sharp sell-off in the so-called ‘taper tantrum’ in the second half of the year, which followed suggestions by the then Federal Reserve chairmen Ben Bernanke concerning the end of quantitative easing.
In income terms the emerging markets are often overlooked in favour of the blue-chip companies of developed markets, particularly in the UK and US, however the MSCI Emerging Markets High Dividend Yield index has delivered a performance as strong (year to date to August 14) as its mainstream counterparts, with a return of 7.23 per cent.
Meanwhile, figures from the Henderson Global Dividend Index show that emerging markets accounted for approximately 14 per cent of total global dividends in 2013.
That said, the latest figures for the second quarter of 2014 show the percentage of total global dividends has declined to roughly 8 per cent, which is down to a combination of index alterations, weak currencies and changes in the timing of dividend payments.
Compared with the second quarter of 2013, the report states that in the second quarter of 2014: “Dividends from emerging markets fell 14.6 per cent to $29.4bn (£17.7bn). Index changes accounted for 9 percentage points of that decline because the sharp drop in emerging market valuations in recent times means a large number of stocks left our index which covers the top 1,200 firms around the world.
“Weak currencies against the US dollar deducted 6.8 per cent from the total growth rate, or $2.3bn.”
Within the emerging market countries the Henderson research shows Colombia actually contributed the most to the dividend total in the second quarter of 2014 with a figure of $5.6bn, closely followed by Brazil at $4bn, while Thailand accounted for $3.1bn.
But in terms of dividend growth, Chile, Colombia and the Philippines were the only countries to record growth compared to the same period the previous year, while China saw a decline from $2bn of dividends in the second quarter of 2013 to just $700m a year later.
However, in spite of this, the apparent resurgence of the region in terms of both performance and investor confidence could also see income from the region start to improve.
Mark Vincent, manager of the Standard Life Global Emerging Markets Equity Income fund (see page 25) says: “I think one of the reasons a potential client might want to invest in emerging markets is because of the medium-term superior growth prospects that are on offer.”
With long-term investment themes in the region, such as favourable demographics, GDP growth and widespread reform agendas set to boost both returns and dividend growth, emerging market income could be about to re-establish itself in the minds of investors.
The picks
Newton Emerging Income fund
One of the newer entrants to the emerging market income space, this £226.83m fund was launched in October 2012 and is managed by Sophia Whitbread and Jason Pidcock. Its one-year performance has significantly lagged its peers with a loss of 3.73 per cent, compared with an IMA Global Emerging Markets sector average return of 3.59 per cent, according to FE Analytics. However, performance has picked up in recent months, with the fund outperforming the sector average for the month to August 14 with a return of 3.27 per cent. Its highest sector weighting is to financials at 32 per cent of the portfolio.
Polar Capital Emerging Markets Income fund
Managed by William Calvert, alongside Ming Kemp and Neil Denman, this £401m fund has one of the better track records among IMA-listed emerging market income funds. Its three-year return of 23.48 per cent outperforms both the IMA Global Emerging Market sector average of 12.39 per cent and the MSCI Emerging Markets index return of 14.1 per cent. Its largest sector weighting is to financials at 22.8 per cent of the portfolio, while its largest geographical weightings are to China at 17 per cent and Brazil at 16.1 per cent.
Editor’s pick
JPMorgan Global Emerging Markets Income Trust
Managed by Richard Titherington and Omar Negyal this £340.8m investment trust was launched in 2010 and has outperformed the AIC IT Global Emerging Markets Equities sector average across both one and three years, more than doubling the sector average return of 15.8 per cent in the three years to August 14 with a return of 34.63 per cent. The trust’s largest sector weighting is to financials at 18 per cent of the portfolio, while its largest geographical weighting is to China at 18.8 per cent.
