David Ruff and his team at the Forward Select EM Dividend Fund, which has $45 million, focuses on companies with high dividend yields and likely earnings growth, which allow for dividend growth and price appreciation. “Oftentimes you find the lower multiples in the challenged macro areas,” he says. The firm looks for a company’s dividend history relative to its local market and then applies statistics to tell him when it’s unusually high. That has led the fund to such names in Brazil as Ambev, the beverage company; the stock exchange BM&F Bovespa; and Hypermarcas, a Brazilian pharmaceutical concern. These companies have been offering excess cash generation.

In Russia, Forward has positions in what he calls good payers: Norilsk Nickel, the nickel/palladium producer, and mobile phone operator Mobile Telesystems.

The Forward EM dividend, launched in the middle of 2011, came about because the team was looking over its much larger broad international dividend strategy and found that emerging markets players seemed to be doing particularly well with dividends.

“Oftentimes, we find better dividend payers and dividend policies in small caps,” says Ruff, “which sounds a little bit surprising because these are smaller companies—they want to grow and they should be saving their capital to grow. … But what happens is lots of times these are families businesses that go public, and the family or founder or majority stakeholder retains control of 50% or more or the company, and they will many times pay themselves a dividend. We like those kinds of situations, because we’re seated on the same side of the table.”

The high dividend payout proves the company is well-disciplined in a wild west emerging markets world.

Two other names he likes are 8990 Holdings in the Philippines, a low-cost prefab residential builder which is benefiting from lower construction costs in a country with great housing demand, and Globetronics, a Malaysian company that provides LED chips and sensors for phone handsets, among other things.

He says the fund has outperformed the MSCI Emerging Markets index since inception, but the taper tantrum upset the apple cart. His fund lost 6.78% in 2014.

Oil, Not Oil
The effects of oil on the emerging markets might have some investors sanguine.

But Medenica says the effect of plunging oil prices on the Asian countries has been overstated—nobody expects oil to stay cheap forever or to keep giving companies a boost. Instead, she says, countries like India, which she favors, are likely to benefit from many of the same fundamentals China has, including long term increases in per capita income growth.

“India’s move has been much less [than China’s], but even to get part of that achievement over the next five to seven years you’re looking at a very significant increase in per capita income, which will translate into higher unit volume growth or changing dynamics in companies, which is something … you’ll begin to see in a couple of calendar years not necessarily this calendar year.

She thinks the underreported area is the Andean markets in Latin America like Colombia, Chile and Peru, which are written off as commodities exporters but are actually more complex, taking off in things like food retailers, banking, IT and health care. “We’ve been able to find for the last few years with interesting growth profiles and hence we tend to be always overweight those markets.”

Kong, who leads the $70 million Matthews Asia Strategic Income fund (MAINX), says, “The biggest trend we’re seeing is the fact that wage growth has outpaced GDP growth for the last 10 years. I was visiting China two weeks ago and we continue to track 10% to 15% wage growth on an annualized basis.

“What’s interesting is that even blue collar workers have been seeing this type of wage growth. In fact, there’s been a dearth of blue collar workers. So this wage growth you’re seeing has in fact driven the production further west to western parts of China as well as places like Vietnam, places like Sri Lanka, Bangladesh. They look to benefit from basically the rising costs of wages in China.” Because labor is becoming a scarcer resource, automation is skyrocketing. “I go to China once a year,” Kong continues. “No longer do you see someone sweeping the floors in any of these commercial buildings. You see older women who are using these machines, like they do in New York City.” 
 

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