Demand soars for emerging market equity income funds
IFAs believe the popularity of this type of fund is due to the lack of diversity among dividend-paying products in areas such as the UK.
Emerging market income funds provide a welcome alternative to their stagnant UK and European rivals, according to Ben Willis, investment manager
at Whitechurch Securities.
While dividend-paying portfolios are usually associated with developed markets, Willis believes the lack of diversity in these areas means investors need to look further afield.
"Emerging market income funds certainly interest us," he said. "We have consistently looked overseas to diversify our own portfolio and with the current economic climate it is becoming quite a popular investment strategy to pursue."
His comments come in light of the recent launch of the JPM Global Emerging Markets fund. The team is looking to build on the success of its closed-ended equivalent, which was opened back in 2010.
According to FE Analytics
, JPM Global Emerging Market Income Trust
has returned 16.09 per cent since its inception, significantly outperforming its IT Global Emerging Market Equities sector and MSCI Emerging Markets benchmark, which have lost 0.84 per cent and 0.54 per cent respectively.
Performance of trust vs sector and index since launch
Source: FE Analytics
The trust, which has a yield of 2.38 per cent, is headed up by Richard Titherington
, who will also manage the new fund.
Willis believes that the open-ended version will build upon the asset manager's momentum in the region, while also taking advantage of the current popularity of emerging markets and income funds among investors.
"In terms of JP Morgan’s newly formed emerging markets income fund, the group has proven its experience in this area with its investment trust, and it is known for following a policy of sustained dividends."
He added: "Shares in JP Morgan’s emerging market trust are trading at a premium. While we use investment trusts in our model, we are concerned with the possible issue of liquidity. In general, we do prefer an open-ended fund."
According to FE data, the trust is currently trading on a premium of 4.74 per cent.
However Richard Hancock, analyst at Financial Management Bureau, thinks that targeting two popular markets in an open-ended fund, as is the case with JPM Emerging Markets Income, is unnecessary and over-indulgent.
"It’s a bit niche for me," he said. "I don’t see that there is a lack of income out there that investors need to go searching through emerging markets in order to find it."
"There are plenty of opportunities for income funds in UK, European, global and non-equity funds as well."
"If an emerging market income fund is paying a large dividend, then the chances are it is with a powerful fund house and it is a safe bet."
"But if you are going up the risk scale looking in emerging markets, by adding volatility you are limiting yourself anyway."
"However, due to its proven track record in emerging markets, JPM’s income fund should be one of the best in that field," he added.
While there has been an influx in the Asian market, there are few equity income funds that can invest across all emerging markets.
At present, only Polar Capital Emerging Markets Income and UBS Emerging Markets Equity Income are available in the IMA unit trust and OEIC universe, both of which were launched last year.