The fund gained 3.1% in March bringing the Q1 return to 8.85% and the one-year return to 28.1%. The first quarter dividend of £0.094033 is above last year’s £0.07224, mainly due to our South Korean holdings moving 2023 ex-div dates from year-end into Q1. The 12-month trailing yield is 7.02%, which represents a healthy spread over UK inflation of 3.2% yoy for March.
Taiwanese technology led the gains followed by Financials at the sector level and was led by Kaspi, the on-line marketplace and payments company. This month we’ve also seen some solid performance from allocations that have been relative laggards such as China and Materials. The improvement in China has been relatively broad-based across our holdings following a weak start to the year. The strength in commodities is attributable to copper and our holding in ferrochrome producer Merafe.
The UAE also posted strong performance, although Emaar has proved to be an interesting challenge. So far, we’ve only owned Emaar Development, which is the listed subsidiary of Emaar Properties, and is the most profitable developer in our coverage by a fair margin. The dividend policy is a fixed notional amount, most of which is up streamed to cover the dividend for Emaar Properties. Following full year earnings that significantly exceeded expectations, there were some expectations that Development would propose a special dividend given the significant cash pile. In the end it’s been Emaar Properties that proposed a higher-than-expected payout which means they both have similarly attractive yields of c6-6.5%. As around half of Property’s revenues are recurring (primarily from Dubai Malls) and therefore of ‘higher quality’ we’re now somewhat spoilt for choice. We’re expecting more clarity on new longer-term policies for both to come later in the year, but for now we’re hedging our bets and have switched some of our holding into Emaar Property.
It hasn’t all been plain sailing this month, in Brazil political interference has again raised its head in Petrobras following a quarterly dividend proposal that did not include expected special dividends. We sensed this could be a risk and had reduced our holding ahead of the announcement which was not received well by the market. Free cashflow generation remains very high and the stock is deeply discounted, for the moment we are keeping a smaller position and are on the sidelines until this important matter is clarified.
Our interpretation of the SOE law is that these funds should be distributed and cannot be used for alternative purposes, so it will be an interesting test to see how this plays-out. Our suspicion is that there will be a middle ground sought which will still mean the company has yields in the mid-teens whist the balance sheet will continue to strengthen.
The strong momentum in Taiwan took several positions to valuations and yields that were no longer interesting, so we’ve been recycling capital where we don’t see scope for further earnings upgrades. This is complicated by the fact that the rapid adoption of AI is now catalysing a broader upgrade of other parts of computing architecture that have to keep-up with Nvidia processors, so there’s now potentially a rising tide for earnings in a broadening spectrum of the industry.
Across the Luzon Strait, the result of the Korean election was that the main opposition Democratic Party secured a landslide victory humbling President Yoon Suk-yeol’s party. Whilst this will scupper significant tax reform, core elements of the ‘Value-up’ program are still likely to be pushed by the President. We expect to be seeing tangible proposals in the coming weeks.
