UBS fund to launch with heavy weighting to Taiwan

The UBS Emerging Markets Equity Income fund will launch at the end of the month with about one-third of its portfolio invested in Taiwan, nearly three times that of the MSCI Emerging Markets index.

“There are a lot of high dividend yielding companies in Taiwan,” says Projit Chatterjee, the portfolio manager and senior member of the group’s emerging markets equities team.

Yet rather than taking a country bet, Chatterjee says the heavy weighting in Taiwan is the result of individual stock decisions. He still finds some of the most compelling investment opportunities within Taiwan’s technology and telecommunication sectors.

Those two sectors account for about 20% and 25% of the portfolio respectively. They are the fund’s largest allocations, both in absolute terms and relative to the benchmark.

Chatterjee insists the portfolio is well-diversified nevertheless as he invests in companies operating in various sub-sectors, which are driven by different dynamics. One of his key holdings in Taiwan is, for example, Chunghwa Telecom, an integrated telecom service provider.

Utilities is the second largest overweight sector, while the fund remains significantly underweight materials, energy and financials. Chatterjee still likes the emerging market consumer theme, especially in Asia, but says many companies are now overvalued. (article continues below)

Chatterjee and his co-manager, Urs Antonioli, focus on income generation, together with long-term capital appreciation. Typically, they will hold between 40 and 90 stocks of companies that pay out dividends rather than invest back into the business for expansion and growth.

According to the fund’s mandate, the duo can also allocate opportunistically up to 20% to Hong Kong and Singapore.

Although the latter two countries are technically not part of the emerging markets universe, Chatterjee says many companies deriving their business from key emerging markets are listed there.

At a country level, the fund is also overweight the Czech Republic. About 5% of the portfolio is invested in the Czech Republic. Much of this is held in Cez, an electricity utility company.

The fund was seeded with £10m by UBS and will officially launch on January 31. UBS may also launch a Luxembourg-domiciled version of the fund. However, that particular version may exclude Hong Kong and Singapore.