TIP SHEET: New Charlemagne Fund Targets Dividend Returns

23rd Jul 2010 12:35

(This article was originally published Thursday.) By Riva Froymovich Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Market optimism has largely faded, but a new fund that focuses on dividends instead of capital gains seeks to shield investors from the gloom. Charlemagne Capital in June launched the Magna Emerging Markets Dividend Fund, which combines the emerging-market asset-management group's favorite stocks, but that pay an above-average dividend yield. A dividend is a portion of the company's earnings paid to shareholders, and the dividend yield measures how much an investor gets relative to the share price. That means an investor will get a higher payout if the stock does well, but the payout comes even if the stock is struck by broad market turbulence, which has swept through trading over the last few months. "At a time when investors are nervous, people like the protection of having that income," said Julian Mayo, co-chief investment officer for the fund. The average dividend yield for both emerging market stocks and developed world stocks is about 3%. This fund seeks average dividend returns of 6% this year, with expectations that rising earnings in 2011 will lead to a 7% yield next year. These yields are particularly attractive now, at a time when interest rates in much of the world are at historic lows and reliable yields above 3% are harder to come by. Moreover, even with the rising specter of inflation in emerging markets, Mayo expects the dividend yield to exceed the rise in inflation there. Mayo says this fund may attract investors who have wanted to shift more into emerging markets, but were worried about riskier investments amid recent market uncertainty. "An increasing number of investors recognize that the future is in emerging markets," said Mayo, who added that most clients are private-wealth managers or private bankers. "A growing percentage of the total return generated by emerging-market equities has been contributed by dividends, a trend we see continuing," he said. The fund has no sector or country favorite--the point is to minimize risk, and an overweight position opens the possibility of overexposure to a particular risk. "We are deliberately trying to make the portfolio as broad as possible," said Mayo. Still, 25% of the fund's stocks are invested in Brazilian companies, 18% are in companies based in Taiwan and 16% are in Chinese operations. Examples include the Brazilian subsidiary of Santander (BSBR), which will have about a 5% dividend yield in 2010 and 7% in 2011, as well as China Construction Bank (0939.HK) and Bank of China (3988.HK), which are expected to see dividend yields between 6% and 7% in 2010 and up to 8% in 2011. Mayo added that the initial public offering of Agricultural Bank of China Ltd. (601288.SH) should support China's financial-sector stocks overall. Given the recent launch, he wouldn't say how much money the fund has raised so far, but dividends will pay out twice a year, in March and September. (Riva Froymovich reports on emerging market economies for Dow Jones Newswires. She can be reached at 212-416-2217 or by email at [email protected].) (TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at [email protected]. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.) (END) Dow Jones Newswires July 23, 2010 07:35 ET (11:35 GMT)