Ecofin Water & Power Opportunities, Premier Energy & Water and Utilico Emerging Markets have been my selections to play out these themes. The one holding that has really stood out this year has been Utilico: emerging markets have struggled but it has posted strong performance.
The company was launched in 2005 and invests predominantly in infrastructure, utilities and related sectors. There is an emphasis on ports, toll roads and rail investments, as well as water and waste.
The approach has no style bias but manager Charles Jillings and his team target companies that display the characteristics of essential services or monopolies.
Most holdings boast strong management, are asset-backed, have good cash flows and offer good dividend yields.Conviction calls
In terms of geography, Brazil has been a conviction call. This remains the case although it has reduced recently due to relatively poor performance.
I agree with the managers’ assessment that there are still some great opportunities there regardless of the broader issues.
Chinese exposure is almost entirely through Hong Kong and remains the biggest weight in the portfolio which, having visited the region in recent years, I am very comfortable with.
What also makes Utilico attractive is that it pays a dividend yield of around 3.5%, and I am very conscious about the important role that dividends can play to enhance returns for investors in my fund.
Unlike most other investment companies with a yield, Utilico can be bought at a discount to asset value.
The board has had to dip into its capital reserves to support the dividend for the past two years but Jillings expects that the dividend will be fully covered by earnings within a year or so.
Since its launch this vehicle has tended to lag in strong market rises but perform better in weaker times.
As ever for a fund manager, it is important to get a good and complimentary balance of stocks covering a theme or a sector in a fund, and Utilico, along with Ecofin and Premier, provide this for me.