This £312.6m fund launched in December 2012 with Mark Vincent at the helm and has since navigated a turbulent time for emerging markets. He explains: “It’s a total return objective but offers clients an attractive level of dividend yield and dividend growth at the same time.”
Mr Vincent adopts what he calls a “two-pillar approach” to running the portfolio, with one pillar representing sustainable dividends and the other dividend growth.
“There is a dividend stream to be harvested in these markets, so half of the fund is invested in high-dividend ideas where we think there will be sustainability,” he says. “But I also think people want to be in Gem [global emerging markets] because of the superior growth that has, historically, been available. Why not have that growth in the form of companies that care about you enough as a shareholder to pay you some cash back.”
This means the manager invests in companies that may not be paying a high dividend at the time of taking an initial position in them, but where he expects to see significant revenue growth over the next few years, rewarding investors with a growing income stream.
Mr Vincent suggests the most “definitive feature” of the fund is the fact it has no “dividend hurdle”, setting it apart from other global emerging markets income funds. “Over the next few years, what I need to see is that dividend stream growing significantly, which creates a broader opportunity set. This two-pillar approach means you get the downside protection dividend funds generally give you. But, when the markets go up, because you’ve got that growth focus in half of the fund, you also have the opportunity of outperforming the market. So that’s been a differentiator – better upside capture but we still have that downside protection,” he adds.
From a universe of 3,000 potentially investable companies, Mr Vincent whittles his portfolio down to around 90 holdings. He utilises SLI’s “core expertise” in picking stocks, but acknowledges his process involves being “macro aware”. He is looking for change dynamics at companies the market has not yet priced in. “Mostly we do it by knowing our sectors really well and by meeting as many companies as we possibly can,” he says.
Macroeconomic factors do come into play at a portfolio construction level, though, he explains. “You may assemble a list of companies you really like but, when you do the analysis, this results in having a big exposure to the oil price or to Korea. We try to keep those factors and country exposures to a minimum. You can add value in a country without having to make big bets at a country level.”
EXPERT VIEW Rob Morgan, pensions and investment analyst, Charles Stanley Direct |
| This fund takes Standard Life’s high-conviction approach focused on business and industry change to higher yielding EM equities. Mr Vincent believes that to get the best returns you have to embrace more dynamic parts of the market. The manager is happy to invest in frontier markets: Egypt, for instance, has been a strong, though minor, area for the fund as the political situation has become more stable. The fund has a shorter track record than most of its peers, but compares well. Investing across a variety of emerging markets requires resources and, while some peers may boast greater analyst coverage, you can’t argue with Mr Vincent’s figures so far. |
Investors in the clean platform 1 accumulation retail share class will pay ongoing charges of 0.99 per cent. The fund’s risk reward rating is level six, towards the riskier end of the spectrum.
Mr Vincent admits it has been a “tough time” for emerging market economies. As he observes, funds investing in emerging markets have had to contend with outflows, currency weakness and earnings downgrades. FE Analytics shows the fund has done what the manager says and protected from some of the downside. In the three years to April 6 2016, the fund generated a negative 5.7 per cent return, while the IA Global Emerging Markets sector was down 7.5 per cent on average. In the past 12 months to April 6, the fund lost 8.8 per cent but the average return from the sector was a negative 11.7 per cent.
Mr Vincent says: “This year’s been quite a mixture. We had the strong sell-off continue at the start of the year and everything in the market was very correlated. That is a time when we struggle, when our stockpicking process doesn’t really add value.”
One of the portfolio’s holdings that has done particularly well is Russian utility Inter RAO. Having added this to the portfolio in the past year, he believes the stock has “a long way to go”. The manager also took advantage of the rally in China A-shares last year. Some of the portfolio’s Brazilian holdings have not fared so well, prompting the manager to sell out of these positions. Education company Ser Educacional suffered a setback when the government withdrew support – “we stuck with it for a little while but ultimately decided to exit”.
