The UBS Emerging Markets Equity Income fund launched in January 2011 and has grown to £102m in size.
Co-manager Projit Chatterjee reveals that the aim of the fund is to deliver yield with capital appreciation over time.
“We have a stated minimum of delivering at least 120 per cent of the yield of the MSCI Emerging Markets index. But in reality, we have been delivering more than 150 per cent of the index yield,” he explains. “Yield is a primary objective of this particular product.”
Mr Chatterjee says that he and his co-manager, Urs Antonioli, use a fundamentally bottom-up approach to selecting stocks for their portfolio.
“We are looking at a universe of stocks to select high dividend yields based on past dividends, future dividends, our analyst numbers and market consensus numbers. We are then removing overvalued stocks from these high dividend stocks.
“We are applying a qualitative overlay, which involves our analysts opining on where the dividend numbers might not be sustainable for some reason, where there are other issues with the country or industry that might have an impact on its price. Finally, we construct the portfolio.”
Macroeconomic variables do come into the process, particularly when the manager is looking at valuations.
He continues: “Where we have the qualitative overlay, then macroeconomic issues and policy issues are discussed. So we might, for example, on a bottom-up basis find a lot of stocks in a particular sector that, if there are certain headwinds for that sector coming from macroeconomic or regulatory issues, then we might avoid building up full exposure to that sector.”
On a risk and reward profile, the fund is placed at the riskier end at level six, and has ongoing charges of 1.25 per cent.
Mr Chatterjee insists that it is not a very high turnover portfolio, although every couple of months he does a rebalancing to see whether it throws up any potential buy or sell trades. Over the past year, he has increased the portfolio’s exposure to China by adding property, coal and telecoms stocks.
Having launched in 2011, the fund has only just built up a three-year track record, but in that time it has performed well. The fund is top quartile in the IMA Global Emerging Markets sector with a return of 14.76 per cent over the three years to August 15 2014, compared with a sector average of 11.10 per cent, according to FE Analytics.
The fund has also outperformed its benchmark, the MSCI Emerging Markets index, since inception.
