A Fund That Focuses on Emerging Market Dividend Plays

For more than 20 years, Rahul Sharma, a portfolio manager at Schafer Cullen Capital Management, has plumbed various emerging markets for worthy dividend stocks. Although Sharma is a value investor, he’s flexible and will pay more for growthier stocks, provided he thinks the valuations are reasonable and the companies’ fundamentals are sound.

“What has always intrigued me is just how much great exposure you can get to great growth and great themes” in emerging markets, he says.

The $536 million
Cullen Emerging Markets High Dividend
fund (ticker: CEMDX) has a 10-year annual return of 3.7%, including dividends, besting 86% of its Morningstar peers. Sharma has played a key role in running the fund since it launched in 2012. He joined the firm in 2000, having studied mathematics at The College of William & Mary while wrestling on the school’s team.

Sharma says he learned some life lessons on the mat. “I didn’t get pinned too much, but sometimes you do get beat,” he says. “You have to get up and carry on.”

Sharma and his investment team use screens to whittle down the universe of stocks to a manageable number. Then, they do more analysis, including talking to management teams. “We’re very focused on having strong free cash flows to support dividends,” he says.

The portfolio’s dividend yield was recently at 5.3%, compared with about 3.3% for the MSCI Emerging Market Index, its benchmark. Sharma observes that “country factors matter a lot more in emerging markets, and you need tools to be able to analyze those risks.”

For example, he sold most of the fund’s Russia holdings prior to Russia’s invasion of Ukraine in 2022.

The Cullen emerging market dividend fund’s country allocations include being underweight China, equal weight Taiwan, and overweight India, Mexico, Greece, and Brazil.

Sharma views India as “the new China,” noting that it “has a lot going for it. They have a comparative advantage with regards to labor, which is large, skilled, and often English speaking—and it’s a young workforce.”

One of the fund’s holdings is
NHPC
(NHPC.India), a large operator of hydropower generating plants in India. Not surprisingly, Sharma sees it as a play on renewable energy. The stock recently traded at 12.5 times earnings and sported a dividend yield of 3.6%.

Sharma incorporates global macro investment themes into his stock-picking. Mexico, for example, is benefiting from reshoring—that is, foreign companies repositioning their supply chains there in order to reduce dependence on China after the major supply disruptions that occurred during the pandemic. Mexico, he adds, “has a very large labor force that’s very hard working.”

One of the fund’s holding is
Prologis Property Mexico
(FIBRAPL.Mexico), a leading Mexican real estate investment trust, which recently yielded around 3%.

And Greece had a severe financial crisis in 2009 when its economy was overwhelmed by debt, but has since bounced back. One of his holdings is
Mytilineos
(MYTIL.Greece), an industrial conglomerate and aluminum producer with a dividend yield of 3.5%.

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