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The Irish UCITS fund will invest in 50-60 emerging market stocks across the market cap spectrum, all of which will offer dividends higher than the yield available in their respective bond markets. The gross forward yield on the fund is estimated to be above 8%. By comparison, the weighted average 10-year bond yield available on the portfolio’s country exposure is 4%.
With this new fund, the team are targeting mature well-run businesses in countries with low volatility currencies. The fund managers will look to capture a high yield from a relatively concentrated portfolio of companies selected for their sustainable dividend characteristics and ability to grow at least in line with inflation.
Citywire AAA rated Matt Linsey and Kamil Dimmich also manage the US$1bn Pacific North of South EM All Cap Equity strategy. A multi-cap value focused approach which has outperformed in 8 of the past 10 years, at a time when equities have largely been driven by growth names. This well-established investment process will be leveraged within the new fund.
Matthew Lamb, CEO, Pacific Asset Management, commented:
“We are really excited about this limited capacity opportunity. We have already seen significant interest from a number of cornerstone investors, which underlines the desire for attractive income and inflation protection through high-quality dividend paying firms across the emerging market spectrum. The fund management team have an enviable 10yr plus track record and this fund adopts the same long-standing cost of capital and bottom-up research focused investment process. A truly “craft” investment solution in a world of many industrialised asset management offerings”.
Matthew Linsey, fund manager, said:
“Emerging market firms are, in general, seeing elevated EBITDA and relatively low CAPEX leading to high free cash flows. Unlike US firms where buy-backs are the order of the day, emerging market firms tend to distribute. Unlike many emerging market income funds, which are often entirely Asia-driven and benchmark orientated, we will invest in the best names in low cost of capital countries across the emerging market universe while offering a very attractive yield. Moreover, we see this in the context of real returns, and we believe this fund could be a truly attractive inflation hedge.”