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Killik: time to buy Utilico Emerging Markets

18 January 2018

The research team at Killik & Co highlights Utilico Emerging Markets as an investment company that could take off this year.

Bargain hunters in the investment company space need look no further than Utilico Emerging Markets (UEM), according to Killik & Co.

The research team at the wealth management company highlighted the £480 million listed, closed-end fund as one to watch this year.

Trading on a discount below its net asset value (NAV) of just over 12%, the Bermuda-based fund targets dividend-paying companies in the infrastructure and utility sectors across emerging markets. This enables the investment team led by Charles Jillings to tap into the urbanisation of the developing world. They typically focus on companies that operate in power generation, ports, airports, water and waste.

‘We continue to view this strategy as an attractive alternative way to gain exposure to the economic growth of emerging markets but via the more resilient, less volatile, return profile of infrastructure and utility-related investments,’ the Killik team said in a note.

In Killik's opinion, Utilico’s double-digit discount looks attractive, given its performance track record relative to broad emerging markets. Last year its shares delivered a return of 20.4%. Over the past five years, its total shareholder return, including quarterly dividends, of 54.6% has outpaced the 48.2% from the MSCI Emerging Markets index. However, it lagged the MSCI Global Utilities index which delivered 64.9%. The company’s NAV grew by 60.1% over the same period.

Meanwhile, the shares yield 3%, which represents another draw for Killik.

Discount control

Utilico’s board has reiterated its commitment to controlling the discount, with a buyback policy in place if the discount widens over 10%. Since November they have continued to buy back shares.

‘This should protect against any material discount widening from current levels,’ Killik added.

Utilico's discount to NAV compares to an average discount of 8.5% across the Association of Investment Companies' global emerging markets sector.

Back in June 2016, Utilico slid to a 15.5% discount. This then narrowed and the fund traded around 10% below NAV until August before reverting to a double-digit gap.

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