UTILICO EMERGING MARKETS TRUST is quick changing into a dividends hero

It has been a good year for shareholders in investment trust Utilico Emerging Markets. The share price is up by more than 20 per cent, while investors have also enjoyed a steady stream of growing dividends.

The trust’s success has resulted in it joining the FTSE250 Index – and being classified as an early stage ‘dividend hero’ for increasing income payments to shareholders every year for the past decade.

To put this into perspective, no other emerging markets fund has obtained this badge of dividend honour.

Yet as far as the investment managers are concerned, now is not a time for resting on laurels, and are constantly searching for exciting companies to invest in.

This desire to hunt down new opportunities means travelling to emerging market countries and meeting the management of businesses. They also use this time to catch up with the bosses of existing holdings, while speaking to local brokers who have their ears close to the investment ground.

Joint managers Charles Jillings and Jacqueline Broers, plus senior analyst Mark Lebbell, have just come back from a successful two-week trip to South Asia, embracing visits to China, Hong Kong, Malaysia, Philippines and South Korea.

‘It was a look into the future,’ says Jillings, who has managed the trust since it was launched 20 years ago. ‘We experienced travelling in driverless vehicles and flying taxis.’

The trip also resulted in a ‘small’ investment in Chinese data centre operator GDS. ‘It’s a company we have high confidence in,’ he adds. ‘Worldwide demand for data centres, fuelled by the thirst for artificial intelligence, is phenomenal. GDS also has an international footprint in Malaysia and Thailand. We’ll keep building our stake.’

In February the team will head to Central and South America to do the same again. Says Jillings: ‘We’ll be visiting Brazil, where nearly a quarter of the trust’s assets are invested. Also Chile and Mexico, which we see as tantalisingly interesting.’

The trust, valued at £476 million, has 70 holdings. Although the managers are focused on delivering total returns for shareholders (a mix of capital gain and income), their search for dividend-friendly firms differentiates Utilico from most emerging markets funds.

The result is a portfolio skewed towards utility companies – energy providers, telecoms operators, water and waste companies. Some 80 per cent of the trust’s investments are dividend-paying.

By way of comparison, most rival funds are heavily invested in IT, financial and consumer-oriented companies. Jillings says the main connection between the companies in the fund is that they are run by good teams and have successful business models, using pricing power to drive up revenues.

For example, container port operator International Container Terminal Services is among the fund’s top ten holdings. Although based in the Philippines, it has operations in 19 countries.

‘Over the past five years, it has seen five per cent annual growth in the number of containers going through its ports,’ says Jillings, ‘but its revenues have increased by 13 per cent a year. In the nine months to the end of September this year, volume growth has jumped nearly 12 per cent.’

These figures, he says, indicate that, in spite of President Trump putting a spanner in the works with tariffs, global trade remains strong, with emerging economies the beneficiaries.

Annual charges total 1.5 per cent with dividends paid quarterly, generating annual income of about 3.5 per cent. Its stock market ticker is UEM and code BD45S96.