Borrows, manager of the Midas Income & Growth investment trust, holds a number of emerging market and Asia Pacific ex Japan equity income funds in his portfolio, as he says there is a growing dividend culture in these sectors.
While the manager accepts that emerging market equities have been a difficult place to invest in recently, he says investors should not be too concerned about buying into them now.
"We have taken a medium- to longer-term view on emerging markets," Borrows explained.
"Clearly, markets have been right ahead of the game as last year we saw a wholesale rotation from emerging markets into developed ones as sentiment improved on the back of improving economic data."
"However, we still believe there are very strong potential returns to be made from emerging markets and Asia, especially for stockpickers. While there will always be gyrations in sentiment towards these markets, it is seldom as good or bad as people make out."
"But, I think we are at the end of the scale in terms of fund outflows and it now isn’t as bad as investors believe. We hold a bunch of managers that are giving us a good income stream as not only do they have a decent starting yield, but that income is growing," he added.
With that in mind, Borrows highlights three of the funds he holds that he believes can increase their net distribution over time.
Somerset Emerging Markets Dividend Growth
Borrows likes the Somerset Emerging Markets Dividend Growth fund because of its relatively nimble size and the manager’s ability.
He also holds the highly rated Newton Asian Income fund, but it now stands at £3.9bn. As a result, he says the Somerset managers should be able to jump on areas of the market that offer faster growth.
"The fund has grown quite a bit recently, but it is one that we have held for the past two or three years," Borrows explained.
Edward Lam has managed the £315m Somerset Emerging Markets Dividend Growth fund since its launch in March 2010.
According to FE Analytics, the five crown-rated fund is a top-quartile performer in the IMA Global Emerging Markets sector over that time, with returns of 21.59 per cent, beating the MSCI Emerging Markets index, which has returned 1.64 per cent.
Performance of fund vs sector and index since March 2010
Source: FE Analytics
Lam’s fund currently offers a yield of 3.3 per cent, which is higher than its benchmark’s 2.8 per cent.
He has a strict bottom-up approach to investing, with financials, consumer staples and information technology stocks, which make up the bulk of his sector weightings. Lam focuses over half of his portfolio in companies with a market cap of between $5bn and $20bn.
Somerset Emerging Markets Dividend Growth has an ongoing charges figure (OCF) of 1.3 per cent and requires a minimum investment of £2,000.
Charlemagne Magna Emerging Markets Dividend
Borrows also holds the $63.7m Charlemagne Magna Emerging Markets Dividend fund. He says it is similar to the Somerset portfolio, its size meaning it can gain exposure to some of the higher growth opportunities.
Julian Mayo has managed the five crown-rated fund since its launch in June 2010.
Over that time, it is the sixth-best performing portfolio in the IMA Global Emerging Markets sector, with returns of 27.71 per cent, beating the average fund by more than 22 percentage points.
Performance of fund vs sector since June 2010
Source: FE Analytics
Mayo’s fund is also the best performer in the sector over one year with returns of 13.79 per cent. It currently has a yield of 4.87 per cent.
Like the Somerset fund, Charlemagne Magna Emerging Markets Dividend’s largest sector weighting is to financials. Its biggest regional allocations are to Brazil and China, which make up 15 per cent and 14 per cent of the fund, respectively.
Charlemagne Magna Emerging Markets Dividend has an OCF of 1.75 per cent and requires a minimum investment of £5,000.
Schroder Asian Income Maximiser
The five crown-rated Schroder Asian Income Maximiser fund is Borrows’ ninth-largest holding, making up 2.1 per cent of his Midas Income & Growth trust.
While the other funds he holds offer a growing income, Schroder Asian Income Maximiser – which is managed by Thomas See and Richard Sennitt – already has an attractive 7 per cent yield.
However, while the fund’s yield is high, our data shows that the managers have been able to increase their net distribution over recent years.
To find that yield, the managers invest in Asia Pacific ex Japan equities. However, to generate additional income the managers also use various derivative instruments and alternative investment strategies.
Over three years the £201m fund has been a top-quartile performer in the IMA Asia Pacific ex Japan sector with returns of 24.62 per cent, nearly doubling the returns of its benchmark – the MSCI AC Asia Pacific ex Japan index.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
If an investor had put £1,000 into the fund three years ago, they would have earned around £250 worth of income.
Schroder Asian Income Maximiser has an OCF of 1.71 per cent and requires a minimum investment of £1,000.