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172. Bull, Bear & Beyond – Vantage: Charles Jillings on UEM's utility and infrastructure focus and growing, covered dividend
8 Plays10 days ago
In this interview, Charles Jillings, who along with Jacqueline Broers manages Utilico Emerging Markets (UEM), which has just celebrated its 20th anniversary, discusses why he thinks global investors should consider an allocation to emerging markets. He also highlights that a continuation of long-term growth trends, such as urbanisation, contributed to strong emerging markets performance in 2025. Jillings then focuses on what UEM offers investors in terms of exposure to utility and infrastructure assets, which are high-conviction, quality businesses with strong management teams. More than 80% of UEM’s portfolio companies pay a dividend, which enables the trust to pay its own shareholders a rising covered dividend. UEM has just become an AIC next-generation dividend hero as it has achieved a 10-year record of consecutive dividend increases.
Jillings explains the four growth megatrends that are represented in UEM’s portfolio: social infrastructure, energy growth and transmission, digital infrastructure and global trade. He highlights the trust’s strong absolute and relative performance versus the MSCI Emerging Markets Index. This is just used as a reference as there is minimal overlap between the index and UEM’s portfolio. Jillings concludes by sharing his bullish outlook for emerging markets in 2026, which is based on lower interest rates, higher commodity prices and attractive valuations.
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Bull, Bear & Beyond': features candid conversations with senior executives and from our own team of experts from across industries, exploring strategy, innovation, and the opportunities shaping their markets and 60-second pieces are a compressed summary of content designed to convey our message in a single, easily shareable hit.
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Transcript
Strong Performance in Emerging Markets
00:00:06
Speaker
Welcome back to Vantage. that There's a bull behind me in the picture, and it's very appropriate because emerging markets have been booming this year. We're going to talk to a very experienced manager who focuses on an emerging market portfolio.
00:00:18
Speaker
Let's
Meet Charles: Emerging Market Portfolio Manager
00:00:19
Speaker
go take a look. Welcome back to Vantage. ah Emerging markets have been incredibly strong in 2025. We think that's going to continue in 2026. So I'm delighted to be joined by a very experienced manager who manages at an emerging market portfolio.
00:00:33
Speaker
ah Welcome back to Vartis, Charles. For those who don't know you, perhaps you could just outline your role and the fund that you run. Absolutely. So I head up an investment team based out of Epson. We have offices across the globe, so in Latin America, in Singapore, um and we recently have one in Korea.
00:00:54
Speaker
um And we're focused on managing a listed investment trust called Utilico Emerging Market Trust, listed the London Stock Exchange. um And we had our 20th anniversary this year.
00:01:12
Speaker
And I'm pleased to say that if you looked at the compound total return, and it was 5x for all starting shareholders, um a well ahead of the MSCI i index.
Why Invest in Emerging Markets?
00:01:25
Speaker
Thank you. Well, that's, well, firstly, congratulations. And that it feels like this year, certainly, the spotlight is very much or on you and emerging markets. So why should global investors consider an allocation to emerging markets? And what's the right reason but behind the strong performance that we've seen this year?
00:01:44
Speaker
So I think ah the the the answer to that is it is in both pieces. um And region markets continue to have investable dynamics. so Urbanization is still strong thing.
00:01:57
Speaker
I think people forget that China's urbanization rate is only up to 60% if it closes in. on America, then it needs to get to 80%. If you look at India, it's starting well behind. you look at, if you want demographics, India and Vietnam, young aspirant populations. So we've got a lot of drivers that are seeking improved economic outcomes, and those involve if you want, social infrastructure assets that we focus in on um ah through to ports and airports that benefit from rising GDP. So I think urbanization, strong GDP growth, um and a really good investable background for investors like us who are investing into infrastructure and
UEM's Strategic Focus on Utilities and Infrastructure
00:02:50
Speaker
utilities.
00:02:50
Speaker
Okay, but that but but that's some of those themes that you talk about been around for a while. So I guess the question is, why this year? What's what's been the sort of catalyst to really generate the interest?
00:03:01
Speaker
So I think we've used the opportunity, has a lexicon has shifted, to just highlight, if you want, how how we approach it. But those trends have been around for the last 20 years.
00:03:12
Speaker
always say they're going to be around for... At least the next 10 years, if you look at the infrastructure spend needed to support, if you want energy needs, in any one of these markets, it's a huge opportunity because GDP growth needs energy to grow quicker than GDP to deliver it.
00:03:35
Speaker
But when you overlay you know AI data centers and they shift from analog economy to digital economy, the growth demands are enormous. So I think we've tried to articulate the buckets that we believe are going to drive the opportunity.
00:03:54
Speaker
But those underlying fundamental companies are ones that we've been investing now for 20 years. Okay. And so let's move from emerging markets to why UEM. So ah what do you offer to investors in terms of capital and income returns?
00:04:10
Speaker
I think you started touching on it, but the so of why the focus on the utility and infrastructure assets in particular rather than and get at the all the other sectors? and And what are the ideal features of a portfolio company for UEM?
00:04:22
Speaker
So while UEM, I think our asset class is unique. Certainly nobody else em invests across the if you want the emerging markets in the way that we do. um and I think our knowledge and understanding of those assets is superior to anything else that anybody can offer.
00:04:45
Speaker
What do those assets offer? They offer um ah ah a real monopoly or a real barrier to entry, um and they offer very strong management teams who are driving them. um um And you are seeing a compounding ah a effect. So if I looked at something like International Container Terminal,
00:05:04
Speaker
and Last year, last five years, the as units, the TUs, the containers, grown 5% compound. it and But if you look at their revenues, because they've obviously been able to price up, their revenues have grown 13%. Their EBITDA has grown 16%. That's a fabulous compounding return. yeah um And so what do we offer? We offer a high conviction portfolio that has a lot of resilience in it, another way of expressing it, low beta, so less than 0.8, but a portfolio that is up and running and operational, generating a cash flow.
00:05:48
Speaker
So 80% of or over 80% of our investment pay a dividend to us. um And that enables us to pay covered dividend and rising to our shareholders. So i was very pleased that we went into the AIC's dividend hero category this year.
00:06:08
Speaker
and for our ah ah recognition of our compounding revenues. And I think we're the only emerging market trust in in that position. So ah a yield, 3.5%, good performance. you Yeah, this year it's 20% total return.
00:06:25
Speaker
a terrible return um And if you were brave enough this time last year and had bought UEM shares, because the discount has narrowed, you would have made closer to nearly 40% return.
00:06:39
Speaker
Wow. Okay.
Key Portfolio Attributes at UEM
00:06:40
Speaker
And I mean, wait wait I think we touched on it, but why the focus on utility and infrastructure assets rather than, say, a tech company or a healthcare company? It's where our strength is. You know, we've got decades of of investing in the space across the globe.
00:06:55
Speaker
um I think we see the need for infrastructure and utility assets. Governments understand that um if you want ah urban populations, demand better sanitization, better transport, better digital infrastructure. And they understand they need external investors, especially.
00:07:19
Speaker
both for x and capital, but um on occasion for expertise as well. And I think that environment gives us a really sound foundation to exploit the opportunity.
00:07:32
Speaker
um But we are a, if you want, a focused team who can look at water assets and say, Chile, Santiago, we can compare them to and Sao Paulo, and we can compare them to Manila Water, the three of which are in our portfolio. Yeah, okay. And that I mean, it's interesting you sort of make this sort of comparison. So what are the things ah typically when you find a portfolio company a company in your portfolio, what are the attributes we should read about?
00:08:06
Speaker
So I think it it it goes back to the asset that they are managing, making sure that if you want the regulatory framework astral, that the ability for them to exercise their management skills across to that asset without being disturbed.
00:08:25
Speaker
um But then, you know, the strength of the management team in terms of their ability to drive the returns we're looking for. I think if you had to look at, you know, real standout performers, those two features are absolutely key. But I think the third one is almost in expanding marketplace. So if you looked at something, again, like ICT,
00:08:48
Speaker
They are now 33 ports in 19 countries. yeah And they're taking the philosophy that they built, developed, understand into each of those new ports and driving the EBITDA margin i'm up to the standards that they expect. um And as a result, we've got not only growth because the asset base is expanding, but Growth because TNUs relative to economy always grows. And yeah, um if your GDP is 5%, you would expect TNUs to be 6%.
00:09:24
Speaker
um And they can clearly drive price increases. So it's been a fabulous investment.
Trends Shaping UEM's Investment Approach
00:09:30
Speaker
Yeah, earlier you touched on, you know, these low-term trends, so urbanization.
00:09:35
Speaker
I think you've identified four. In fact, you'll talk about four. Maybe just identify what those four trends are and then ah roughly how, what percentage of the portfolio is allocated to each each trend. And maybe just ah touch on an example that that for each trend as well, they're happy to. Yeah, happy to.
00:09:55
Speaker
So social infrastructure would be um things like water, waste, ah transport. um And it's grown this year, and partly because we have two fabulous investments in Brazil that have done ah very well. um But it's roughly 37%.
00:10:16
Speaker
Our number one investment in the portfolio is a company called Verizon. in brazil And again, i think one of the strengths we have is this wasn't a big market cap when we went in, but we absolutely bought into the business model, made the investment, and they're now over a billion dollars and growing, and therefore...
00:10:37
Speaker
Yeah, it's sizable. um But and it it if you want, they um spotted the opportunity in Brazil where the Brazilian government had shifted the regulatory framework so cities could no longer and dispose of their waste in the countryside and contaminate the country.
00:10:57
Speaker
um They needed to push it through um ah waste treatment and sites. They acquired them, improved their practices.
00:11:08
Speaker
course, waste every day is coming in, so you've got volumes going up. um But they they put in recycling, they put in collecting methane, good selling a back-to-grid, and obviously a lot of green certificates that they have because of the activities that they're improving. So, know, Arise is an extraordinary story. yeah um And I still think a long way to go.
00:11:31
Speaker
um But it's you know it's not going to be buffeted by GAP growths or um wider economic outcomes. And the government is determined to see in Brazil a cleanup of the environment. So I think we're all aligned and I think the opportunity is significant.
UEM's Track Record and Future Outlook
00:11:51
Speaker
If you looked at energy, there is clearly a shift to renewables, no different than renewables. the developed world, and but there's also just a raw need for more power, yeah more transmission. And I call them my forever stop.
00:12:09
Speaker
There's a ah company again in Brazil called Alipar. Family-run business. um They have 9,000 kilometers transmission lines. They keep adding to, if you want, the assets that they run. They're very good at, very disciplined,
00:12:28
Speaker
um And they're able to achieve savings on building out the infrastructure. They usually bring it on earlier and therefore benefit more from the concessions that they've got. And they've been compounding EBITDA at around...
00:12:45
Speaker
and good 16, 17 percent. so you know it it And I can see it continuing because there's this constant auction of new transmission lines which are needed. um But you know a lot of things that are that are driving that sector, I think, are around ah beneath the need for energy, cleaning data centers and and and and the whole digital economy.
00:13:11
Speaker
But also think um energy security, the countries have certainly woken up and where am I getting my energy from? um and therefore, there's a lot of concerted effort to enable investment to happen.
00:13:28
Speaker
If I look at digital, I think everybody understands the shift from analog to digital. I think... For me, i was amazed at the impact of COVID. Yeah. And the lockdown drove everybody online. Yeah. and And somewhat, the emerging markets have always been able to skip and some of the investments that we've needed to make in as we've emerged through technologies in the developed world. But that they've adopted it, 100%. Yeah. um
00:14:00
Speaker
And you can see the growth in terms of data centers. Yeah. And that demand, we believe, will continue and probably accelerate. um you know At some point, governments are going to come out with digital tokens in terms of coins. They're going to come out with infrastructure that's that's much more digitized than is today. yeah and So very excited about that opportunity. and We've got...
00:14:28
Speaker
An investment in Korea in a data center really well located and it should be a compound growth going forward. Okay. um The third one is transport and and ah if you want trade.
00:14:44
Speaker
um And I think... When Trump came in, everybody got anxious about global trade. I think my view was business will sort out, if you want supply chains. And respond, and and when Trump came in this time, I know everybody was anxious. think Again, yeah my view was that and business and governments have sought out supply chains, and they've done exactly that. So, you know yes, it might be difficult, but China and in the month of ah October, October just had a billion dollars of trade. It was...
00:15:21
Speaker
astonishing um and it it it's encouraging because you can see that the ports and and and and assets out there will continue to thrive and grow so i'm excited about it in terms of allocation um social infrastructure 37 percent of it's up because a number of investments two years ago, three years ago, that have really grown in value. um The 25%.
00:15:52
Speaker
Ports, 15%. It's down two ports within our portfolio were bit short earlier this year taken over.
00:16:01
Speaker
puts fifteen but just down yeah um it was it's down because two puts it within then our portfolio were bitual earlier this year and taken over but um Santos in Brazil, fabulous port. and We sold into the offer.
00:16:18
Speaker
And Ocean Wilson, yeah again, have a port in Brazil. um They've sold their port, had a tender. We sold in, we tendered everything then sold balance. So we're out on those two ports. It's not a statement on, if you want, to or a concern about global trade. I think global trade go on and thrives.
00:16:39
Speaker
Okay. You touched, I mean, I think when you talked about the 20-year anniversary, you talked about sort of the performance, um and particularly against MSCI i emerging markets as is a reference point.
00:16:54
Speaker
How have you done, so performance-wise, let's talk about this year, but also longer-term trend. What is the absolute and relative performance? What do you want to sort of highlight to at people? yeah I mean, the absolute relative of performance over that 20 years was about 150% ahead of the MSCI.
00:17:14
Speaker
I think one thing I do want to properly stress is, We reference the MSCI because the market wants us to reference something. yeah It's not an index that we come in yeah and even remotely focus If you look to the constituents of our portfolio, it is just diametric to the MSCI i in index. you know We're not in TMNC.
00:17:42
Speaker
tmsc we're not in you know a whole bunch of companies samsung all of which are driving the msci at the moment um and it's irrelevant to our performance i want to achieve a total absolute return um i'm a shareholder yeah and i some i'm focused on outcomes if you want um But we've beaten the index over the and since inception. If you looked this year, i think year to date, and we're up 20%. I think the index is up 24, little bit because of all of the, if you want, interest around DIPSE, those things.
00:18:30
Speaker
My experience it'll flow through to... demand on data center. It'll flow through to you demanding logistics and to jump in our portfolio.
00:18:41
Speaker
Yeah, okay. I mean, I love the experience that you bring, Charles, and that's something where I think people, you know, you share your wisdom very sort of openly. um As we're we're sitting here, you know, in December, looking forward to 2026, how are you thinking about 2026 and what's the sort of current investment backdrop that you're so taking into account?
00:19:05
Speaker
So the I'm excited about 2026. I think ah the US is probably going to pursue a policy of lowering interest rates, softening the dollar, ah commodities are likely to rise.
00:19:20
Speaker
If you look at Latin America, there are commodity prices. Brazil is all about and soft and hard commodities. So rising commodity prices should be good for them. no ah it Again, Latin America, lower interest rates in the U.S. will enable central banks to continue...
00:19:38
Speaker
to lower local interest rates. um A lot of investors still well are in fixed income. yeah yeah um And as interest rates come down, they'll look for equity investments. So I'm optimistic on a ah a sort of valuation basis. I'm optimistic that you know our portfolio is cheaper than emerging markets. if you looked at and and it If you want price earnings ratios, we're about 10% cheaper.
00:20:07
Speaker
and But the whole emerging market is still cheaper. um yeah And therefore, you know it's a destination for investors. And I think as it it investors seek to invest away from uus and exceptionalism, they'll find their way to the emerging market. Yes. Yeah, no, I can see that. And I think it is will remain a treasure for the the years to come.
00:20:31
Speaker
ah Charles, thank you so much for coming back on the show. Congratulations on the 20-year anniversary. A remarkable mile milestone. Great hear about the performance. And we look forward to tracking how you do in 2026. Well, you'll be able to do that. um We've also gone into the FTSE 250. So I think, you know, we'll be more visible to more shareholders.
00:20:53
Speaker
Great. Thank you. Thank you very much.