Wells Fargo Asset Management portfolio manager Anthony Cragg highlights the importance of growing dividends in emerging market investments, particularly in China.
Cragg manages the $20.8m Wells Fargo China Equity fund with co-manager Elaine Tse and the $6m Emerging Markets Income and Growth funds with co-manager Alison Shimada, and overall manages more than $750m in emerging market strategies.
Cragg says: “To invest in emerging markets paying no attention to dividends is like fighting with one hand tied behind your back. It gains you nothing.”
He explains there is a strong yield focus on all the funds he manages and highlights China, Brazil, Mexico, Thailand, Taiwan and Malaysia as good countries for yield. He labels India, South Korea and Russia as “the three worst”.
The fund manager says he has an “overwhelming focus on income and high dividend paying stocks” but can chase more growth ideas in one of his portfolios.
Over 80 per cent of the Wells Fargo Emerging Markets Income and Growth fund is in stocks with a dividend yield of at least 3.6 per cent – but will allow a certain number of lower dividend payers for the growth component.
Cragg says: “We are targeting income and growth, we are having our cake and eating it too. So we get capital appreciation and we get dividend.
“It has terrific downside protection if it does well. It has lower volatility. It is giving you a lot of alpha whilst taking lower risk at the same time. That mix of offence and defence.”
Samsung Electronics is highlighted as a good example of this kind of play.
“This has been a very conviction buy for us for a number of years it has gone up around 400 per cent since we bought it – it is in the income and growth fund,” says Cragg.
He adds: “It is a low dividend payer, currently paying less than 1.5 per cent yield, so you would not buy Samsung on its dividend credentials.”