In this series of short profiles, we ask leading fund managers to defend their investment strategies, reveal their views on cryptocurrency, and tell us what they'd never buy.
This week our interviewee is Charles Jillings, fund manager of the Morningstar 3-star rated Utilico Emerging Markets investment trust (UEM).
Which Sector Shows The Biggest Promise in 2022?
Tourism, there is such built-up demand from two summers of delay that demand will stay very strong from weddings to holidays. This should lead to airports seeing excess demand for most of 2022 – question is, can they meet that demand? At UEM we have increased our holdings in airports on the expectation of passenger numbers rising above pre-pandemic levels. Within the top 30 holdings is GAP who is seeing such a surge in demand. Asia will need China to allow its international travel to restart. Once it does the surge seen in other markets will also likely be seen in China.
What's The Biggest Economic Risk Today?
Full employment. It has been amazing to see the high job creation and low levels of unemployment. This huge positive is likely to see wage inflation and as a result continued pressure for higher interest rates. Of course, the events in the Ukraine are deeply concerning at many levels. And it is clearly tragic to watch. The key concern for us is the ability for Russia to cut off gas to Europe. The shortages that would ensue would inflict severe restrictions on European economies and push Europe into an unavoidable recession.
Further, food security and the much-reduced supply of wheat from the Ukraine and Russia will also mean a number of countries are challenged as they scramble for basic needs. Finally, China is grappling with the two opposed outcomes: limiting Covid and stimulating the economy. The zero Covid policy has and will continue to inflict damage to the economy as it puts its Covid policy first. The interplay of all the above are challenging investment outlook as they are individually and collectively damaging to a full global recovery.
Describe Your Investment Strategy
We are long term investors who look for good businesses, excellent management teams and acceptable operating environments. We focus on Utility, Infrastructure and Communication. We invest in the Emerging markets. Over 90% of our portfolio is listed and over 95% is operational. We want to be able to see managements’ ability to unlock the business opportunity in the assets they manage. Most businesses have strong cashflows and pay a dividend. In turn, UEM can pay a dividend to its shareholders. We are bottom-up investors looking for compelling investments.
Which Famous Investor Do You Admire?
Warren Buffett – he clearly identifies the right time and the right price to buy a business! And then he holds most for the longer term allowing their considerable strengths to drive cashflows and returns to shareholders.
Name Your Favourite "Forever Stock"
Alupar. This is a family-run Brazilian transmission business – they have demonstrated the ability to run their concessions very well while adding capacity at attractive returns. This ability to run a business which is not dependent on volumes, but rather “availability” combined with capital expansion is outstanding.
What Would You Never Invest In?
Something that needs considerable funding from shareholders over time to realise the value combined with significant risk is too challenging for us. We would find investing in a landbank and facing the risk of planning, development and then operating an asset a big challenge. We do back management teams to expand their existing asset base.
Growth or Value?
Both, while our portfolio is value based I don’t see any need to be one or the other. The key question is whether the opportunity is compelling on a set of metrics. That said much of our portfolio in UEM is bottom up, value led. We are more focused on the resilience of the portfolio and its ability to drive returns over the longer term.
House or Pension?
House first, it’s such an efficient driver of value and the ability to leverage plus the fact gains are tax free means it is the first investment for many. Pension next. We all need to save to meet our needs in the long term. And a pension drives long-term capital to that end.
What Are Your Thoughts on Crypto?
Neither. It’s a new asset class finding its feet. It will be volatile and test holders’ convictions. I suspect over time it will drive a lower friction global economy that’s accelerated by the speed of transfer.
What Can be Done to Increase Diversity in Fund Management?
I think a lot is happening for the good here. We as an industry need to keep up the change needed. Having parameters that encourage the outcomes here is helpful. I have no doubt this will lead to more diversity over time. At UEM we are very pleased to have two very able women board members.
Have You Ever Engaged With a Company and Been Particularly Proud (or Disappointed) in the Outcome?
We regularly engage with our portfolio companies on a number of levels. From encouraging expansion through to dividend payments.
What's The Best Bit of Advice You’ve Ever Been Given?
If it’s too good to be true, then it’s likely to be wrong. If you are being offered the opportunity to make outsized returns, they are often not deliverable. That said very weak market conditions often offer significant long-term gains on investments made at times of significant weakness.
What Would You Be if You Weren’t a Fund Manager?
An architect. I always admire the true inspiration driven for excellent design and purpose of a building. I would find the process and achievement truly rewarding.
