BARINGS EMERGING EMEA OPPORTUNITIES: 61% return from a trust whose forte is in extracting gains from Europe, the Middle East and Africa
As its name implies, investment trust Barings Emerging EMEA Opportunities invests in the world’s global emerging stock markets. But not all of them. Its forte is in extracting gains from the equity markets of Emerging Europe, the Middle East and Africa – eschewing those in Asia and South America.
It’s a skill set that stands Barings apart from many of its rivals. The company now manages £1.9billion across this particular asset class – employing 28 investment specialists to look after the money – and its performance record is more than respectable.
Over the past five years, the £101million trust has delivered a return of 61 per cent, an impressive record when compared with the 41 per cent recorded by the average global emerging markets investment trust.
The pandemic has, however, left some scars, most notably on the income front. The dividends it pays shareholders were scaled back in the trust’s last financial year – from 35p a share to 25p – although it is hoped the overall income payments for the year ending September 30, 2021 will be higher (so far, an interim payment of 10p a share has been made, the same as in the previous year). The shares currently provide shareholders with an annual dividend equivalent to 2.9 per cent.
The trust is currently built around 53 stocks and although Barings says its approach is all about stock picking – ‘bottom up’ stock selection – two themes dominate the portfolio. They are energy and digitalisation. The result is a portfolio that may raise eyebrows among some investors because of its key country holdings in Russia and Saudi Arabia.
For example, the trust’s largest stake – and biggest contributor to its performance so far this year – is natural gas giant Gazprom, majority owned by the Russian government. Both have been roundly criticised in recent months for helping to drive European gas prices to record levels by restricting supplies. Last week, Boris Johnson said European nations must choose between becoming more dependent on Russian natural gas supplied by Gazprom and defending peace in Ukraine.
Matthias Siller is head of Barings’ Emerging Europe, Middle East and Africa (EMEA) investment team and is one of three managers who oversee the trust. He acknowledges its stake in Gazprom carries political risk, but he says it is not a question of ‘putting all the fund’s eggs in one basket’. He adds: ‘Yes, it’s a large holding at just below 6.8 per cent. Yes, it’s a key asset, but it’s part of a diversified portfolio.’
Using yet another egg analogy, Siller’s view is that ‘Russia will not kill the goose that laid the golden egg’ by jeopardising Gazprom’s reputation as a reliable supplier of gas to Europe.
Looking into the future, Siller is excited by the company’s determination to become a major player in the global hydrogen market. He says: ‘It is generating a lot of cash, investing heavily in research and development, and paying us as shareholders a healthy dividend.’
Key holdings in tech companies include Yandex (Russia); Prosus (part of South African conglomerate Naspers); and Russian internet giant Mail.Ru. Russian bank Sberbank, says Siller, has benefited from digitalisation, pushing up revenues and profits in the process. Its biggest holding in Saudi Arabia is bank Al Rajhi.
The trust, listed on the London Stock Exchange, has annual charges totalling 1.48 per cent. Its stock market identification code is 3227334 and its ticker is BEMO. Being a specialist trust, it should only comprise a small part of an investor’s overall portfolio.