In December the fund appreciated by 1% bringing the full year return to 13.6%. A fourth quarter dividend was declared of 0.109366p giving a full year net yield after withholding taxes of 6.4% which compares to December UK CPI of 2.5% year on year.
This compared favorably with the underlying market both in December and over the year where the fund outperformed the MSCI Emerging Market index by 4% and the MSCI World High Dividend index by 3.6%. Since inception in June 2023 the fund has now outperformed both of these net of fees by 27% and 17% respectively, and with lower or similar volatility.
The December performance was driven by strong returns in the UAE and Taiwan whilst the most significant detractors came from South Korea following President Koon’s declaration of martial law on the 3rd December, which was discussed in last month’s commentary. The most notable positive contributor came from Emaar Development which following strong earnings received a further boost when the parent company (Emaar Properties) announced a doubling of the company’s dividend.
We’ve held a position in Emaar Dev since launch given the valuation, profitability and dividend potential. Having doubled in value last year we’ve now started to rotate into Emaar Properties as it has a more diversified revenue stream with a higher proportion of recurring revenue, and now a higher yield.
Looking back at 2024, although it was the Chinese year of the Dragon the history books will remember it as the year of the election. Across both the developed and emerging world electorates voted for seven significant changes in President and at least nine changes to government or ruling coalitions.
Many of these have been a symptom of the inflation spikes of the past years, but we finish the year having cleared most of the political overhang in our EM countries. The remaining uncertainty pervading in the market surrounds the new US administration, primarily in connection with tariffs.
We are somewhat more sanguine about the investment risks to the Emerging world. In part this comes from experience in that realized outcomes are rarely as dramatic as extreme hypotheses, especially in this context when considering the feedback loop into US inflation. But higher US tariffs may also have a moderately positive effect, such as adding pressure on Chinese policy makers to stimulate domestic consumption and/or they could stimulate further intra-EM trade which is increasingly relevant proportion of GDP.
As always there will be winners and losers within the Emerging world but thinking about EM risk ‘in aggregate’ across the asset class, on factor may come as a surprise. Such has been the convergence of economic stewardship between the two asset classes that we close 2024 with a portfolio weighted average sovereign cost of capital of 4.5%, which is below the US equivalent rate of 4.6%. As this strategy is unencumbered by the typical emerging market benchmark, we are able to achieve this by allocating to areas of the emerging world that offer higher yields and the more attractive risk adjusted returns.
If you would like to receive a more granular review of performance and outlook please refer to our quarterly report.
