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Forward’s Dividend Team Still Finding Emerging Market Opportunities

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The uncertainty over the direction of U.S. interest rates, coupled with the general downturn in emerging markets that’s been fueled more recently by the decline in oil prices, has made things difficult over the past couple of years for those who invest in dividend-paying stocks.

But David Ruff, portfolio manager of the Forward Select EM Dividend Fund, has still managed to do well by continuing to find unique dividend cases across the emerging markets spectrum. Emerging markets as an asset class has been “unloved,” Ruff said, and the dividend space has definitely underperformed. “But our approach of finding special stories has really worked for us and now, if you look at valuation metrics and growth metrics at the company level, many emerging market companies, even in Russia – have good growth prospects,” he said.

Ruff and his co-portfolio managers have always focused on seeking out well-run companies where dividends are a high priority and where management is careful and committed to the business and its growth. The team analyzes potential investments quantitatively—looking at dividend history over time and the potential for future dividend growth, among others—and, more importantly, qualitatively, by spending good time with management.

“We spend a lot of time on the road. We’re big believers in this because it helps us uncover opportunities that don’t pop up on Bloomberg screens,” Ruff said. “Traveling helps us find companies that are off radar but have an unusual dividend story, and it enables us to meet management face-to-face.”

Operating on the ground has helped Ruff uncover several family-owned businesses in Asia, the region he’s in charge of. Family-owned concerns are great investment opportunities for dividend investors, he said, “because often the founding father or family keeps a controlling stake in the business and they are paying themselves with dividends, and so we find our interests are often aligned. Throughout the emerging markets, there are many family-owned businesses and as we have a fairly large allocation to small- and mid-cap companies, we own a number of family owned businesses.”

Currently, one of the fund’s biggest holdings is D&L Industries in The Philippines, a family-owned business controlled largely by the Lao family. It’s a well-run business where proper steps have been taken to improve the corporate structure, Ruff said, and ensure a smooth succession plan. More importantly, though, D&L Industries is what Ruff terms “a triple play:” It is a growing business, it pays dividends and management has a commitment toward increasing those dividend payments. Ruff also likes 8990 Holdings, a Filipino home builder that has a good market share in the cheaper, pre-fabricated market.

“In The Philippines, a lot of home builders have moved up to the higher income market, so 8990 has quite a market share and because they’re pre-fab, they benefit from lower costs,” he said. “The company becomes free cashflow positive this year after an aggressive growth phase, it doesn’t have a lot of brokerage following as yet, and they have a 2.5% dividend yield. I don’t think we would ever have known about the prospects of this company unless we’d been on the ground there.”

The Forward EM Dividend Fund is very well diversified, Ruff said, with a focus on “controlling exposure to any single risk factor such as country, region and currency.”