Exhibit 1: Above-average growth prospects in emerging markets

Source: International Monetary Fund (IMF), Edison Investment Research. Note: IMF World Economic Outlook, April 2025 (p = projected).

Why consider UEM?

Jillings and Broers consider that their investment team has unrivalled knowledge and understanding of UEM’s portfolio companies and sectors, which it is constantly expanding by regular travels to the emerging market regions. During these trips, team members meet with current and potential future investee businesses, at both senior and operational levels, including site visits, using their developed network of local contacts. This provides the managers with valuable information, including timely insights about changing business conditions.

In August 2025, UEM’s board announced a series of measures that it hopes will enhance the trust’s performance and narrow the discount. These were a new performance-based tender offer, regular share buybacks, further dividend increases and bringing forward the 2026 continuation vote. The proposals were well received and culminated in a recent 97.6% vote in favour of the company’s continuation, which gives UEM’s investment team a clear, five-year runway in which to shine.

Considering the current investment backdrop, many of UEM’s investments have a domestic/regional focus so should be relatively insulated from geopolitical noise and the effects of US tariffs. The trust offers a low beta (c 0.8) exposure to emerging markets. Over time, the portfolio has become more defensive with a reduction in exposure to global trade (recent exits include Oceans Wilson and Santos Brasil) and an increase in companies benefiting from the growth in social infrastructure such as UEM’s two largest holdings, Orizon Valorização de Resíduos and Sabesp.

UEM: Lower-risk access to above-average economic growth

UEM celebrated its 20th anniversary as a public company on 20 July 2025. Between inception on 20 July 2005 and 31 July 2025, it generated an annual NAV total return of 9.1%. This equates to an aggregate total return of 470.6%, which is meaningfully higher than the MSCI Emerging Markets Index’s 349.7% total return.

Following the trust’s mandate of investment in infrastructure and utility companies, UEM’s managers provide a lower-beta way for investors to access the higher economic growth prospects in emerging markets. Most of the trust’s investee companies are asset backed and more than 95% of the businesses are operational. UEM’s portfolio has a beta of around 0.8, meaning that while it is unlikely to fully participate when emerging markets are rising, there should be an element of capital protection during periods of emerging market share price weakness. More than 80% of the trust’s portfolio companies pay dividends, supporting UEM’s progressive dividend policy.

Recent developments

In the FY25 annual report (ending 31 March), UEM’s board announced that it was reviewing the effectiveness of the company’s discretionary tender offer and how the trust may be afforded a higher valuation. On 7 August 2025, the board provided an update on proposals to increase demand for the trust’s shares which, over time, should lead to a narrowing of its discount:

• A new performance-based conditional tender offer, whereby UEM is benchmarked against the MSCI Emerging Markets Total Return Index. Performance will be measured over a five-year period. Up to 25% of the company’s issued share capital may be tendered if the trust underperforms the index in the five years ending 31 March 2030.
• Continuation of the share repurchase programme, with the aim of UEM achieving and then maintaining a single-digit discount, in normal market conditions. In the last three financial years, c 28.2m shares have been bought back at a cost of c £62.2m.
• Further dividend increases. UEM pays regular quarterly dividends and the total annual distribution has increased each year since 2016. The FY25 payment of 9.125p per share was 6.1% higher than the FY24 dividend of 8.600p per share. The trust’s board is targeting future annual dividend increases. UEM is the only fund in the AIC Global Emerging Markets sector with a 10-year record of consecutive higher annual dividends, making it an AIC next-generation dividend hero.
• Advancement of the 2026 continuation vote to follow the 16 September 2025 AGM, and then to be held at subsequent five-year intervals, subject to shareholder approval.

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The continuation vote was duly undertaken on 16 September and UEM received a very high level of shareholder support, with 97.63% voting in favour of the resolution; hence, the next continuation vote will be in 2030.

Currently, UEM regularly discloses its top 30 positions. The board has decided to further increase transparency by including a full holdings list in the annual report. There is also a commitment, except in exceptional circumstances, to only invest in listed companies. Unlisted businesses currently make up a modest c 2% of the trust’s portfolio.

Perspectives from UEM’s managers

Jillings comments that there was an acceleration in exports and inventory building ahead of the implementation of US tariffs, which provided a tailwind to global economic activity for the first seven to eight months of 2025. However, he anticipates a slowdown for the rest of the year and notes that tariffs are leading to pauses in significant investment decisions. The manager considers that Latin America remains relatively immune from US tariffs, although there is heightened risk in Brazil as the country has been in US president Trump’s sights. As Brazil is a commodity producer, its exports are likely to be redirected from the US to other regions if tariffs become more material.

In the US, Trump ideally wants a weaker dollar and lower interest rates. However, while interest rates are important, Jillings suggests that the strength of the US economy is a bigger question. Despite short-term interest rate expectations coming down, long-term interest rates are rising, as there are widespread concerns about the level of US debt and the ability to service it. Unfortunately, this situation is not just restricted to the United States as other countries, including the UK, are heavily indebted.

The manager explains that a consequence of a weaker US dollar is that investors are slowly repositioning away from US exceptionalism (there have been notable fund flows out of the US and into Europe and emerging markets). Lower US interest rates also enable interest rate reductions elsewhere, which have been widespread including in the UK, New Zealand and emerging markets. Looser monetary policy generally leads to increased confidence and higher stock markets or a lower cost of equity.

Broers recently travelled to Hong Kong, where she gleaned some interesting insights. Chinese investor sentiment is improving, but there are questions about how long the recent stock market rally will continue, as a meaningful part of the move has been due to higher liquidity rather than improving company fundamentals. There is an intense AI and technology focus in China, and the country appears to be well positioned to benefit from its relatively low-cost semiconductor manufacturing. Also, improved performance from Chinese chips is slowly reducing reliance on US semiconductor imports. Another interesting development is that fads, which traditionally originated in the West, are now starting in China, for example high global demand for Pop Mart’s Labubu dolls.

Portfolio breakdown

At the end of August 2025, UEM’s top 10 holdings made up 40.6% of the portfolio, which was a 3.4pp higher concentration compared with 37.2% 12 months earlier. Its top 30 positions made up 74.6%, which was a higher percentage versus 72.9% at the end of August 2024.

UEM’s active share is around 98%, which is a measure of how the fund differs from its reference index, with 0% representing full index replication and 100% no commonality. This is unsurprising given the trust’s specialist mandate and fundamental stock selection. Notable differences between UEM’s portfolio and the MSCI Emerging Markets Index include the trust’s lack of financial stocks, which make up a quarter of the index. Brazil remains UEM’s largest country exposure, despite a reduced allocation over the last few quarters, which compares with a modest mid-single-digit index weighting. The trust has only one holding in Taiwan, which is the second-largest weighting in the MSCI Emerging Markets Index, approaching 20%, and UEM has a similar sized below-index weighting to China.

UEM’s managers have identified four global infrastructure megatrends that they believe will support the growth of the trust’s investee companies long into the future. At the end of August 2025, the portfolio was broken down as follows:

• Social infrastructure (33.6%): increased need for social infrastructure such as sanitation, water supply and transportation networks. Demand is driven by a rising emerging market middle class, with higher levels of disposable income and the ongoing shift to urbanisation. Orizon Valorização de Resíduos is a leading Brazilian waste management company, with an 11% market share via 17 landfills across 12 states. Its core waste treatment and disposal business has high entry barriers and strong recurring demand. The company is creating additional value from waste through biomethane production, recycling, waste-to-energy projects and the monetisation of carbon credits, making Orizon a major player in Brazil’s transition to a circular economy. With 40% of waste in Brazil being inadequately disposed of, the company has significant long-term growth opportunities.
• Energy growth & transition (27.2%): investment in renewable energy areas such as wind, solar and hydroelectric, as well as supporting grid infrastructure, which is required to support economic growth and increase energy security. NHPC is an Indian state-owned (67.4%) hydropower company operating across the full value chain from development to operation. Its hydroelectric assets operate under a regulated ROE model, with incentives for plant availability and performance, while its renewable assets have 25-year fixed power purchase agreements. Despite near-term margin pressure due to expansion capex, NHPC has good long-term growth prospects from its new projects.
• Digital infrastructure (24.0%): digital connectivity investment is occurring very rapidly, driving strong demand for data centres. Hong Kong's leading data centre operator, SUNeVision, serves different market requirements and price points. Its flagship Mega-i data centre is the leading data interconnection point in Asia. While the company has a very favourable growth profile, recent results showed that geopolitical tensions have caused a delay in signing a major new contract, which has led to a reduction in the short-term profit outlook, although the long term still looks positive, with demand from AI customers expected to ramp up.
• Global trade (15.2%): high trading activity levels are expected to continue regardless of Trump’s trade policies, with emerging markets making up an increasing share of global activity. CTP is the largest industrial real estate operator and developer in Central and Eastern Europe with a c €15.5bn asset portfolio. This region lags Western Europe in terms of total prime industrial real estate capacity but is rapidly catching up, while demand for prime warehouse locations from industrial clients exceeds supply. Many of CTP’s new signed leases are with Asian manufacturers that are setting up operations in Eastern Europe for export into Western Europe, as part of the nearshoring trend, which is supporting higher rental income and operating margins. CTP also has a substantial pipeline of high-yielding prime assets under construction, which should help towards the company's ambitious €1.2bn 2030 rental target.

In Exhibit 5, we show how UEM’s exposure to the four megatrends has evolved over time. Since the beginning of 2024, there has been a gradual increase in the social infrastructure weighting, likely a result of the unrelenting trend of urbanisation in emerging markets, coupled with favourable regulatory environments. Realisations and threats to globalisation have resulted in the trust having a lower exposure to companies centred around international transactions.

Performance: Ahead of the reference index over three and five years

Exhibit 6 shows the 10 funds in the AIC Global Emerging Markets sector. The peer group is a diverse mix of companies – some are specialists, like UEM, while others have a general emerging market remit.

UEM’s NAV total returns are above average over the last five years, ranking second out of nine funds. Morningstar’s performance data on the trust does not add back the dilutive effect of its historical subscription shares before February 2018. UEM currently has the widest discount in the sector, a below-average ongoing charge and an average level of gearing, The trust’s dividend yield is 1.5pp above the sector mean, ranking second.

In FY25 (ending 31 March), UEM’s NAV and share price total returns of -2.9% and +1.8% respectively lagged the reference index’s +5.7% total return. The largest positive contributors to the trust’s NAV total return performance were: SUNeVision (+1.7%, beneficiary of the growth in AI); Manila Water (+1.1%, increased infrastructure spending in the Philippines); Aguas Andinas (+0.6%, received a long-overdue tariff increase); Sonatel (+0.6%, strong telecom industry growth); and International Container Terminal Services (+0.6%, robust operational performance). On the other side of the ledger, the largest detractors were: Petalite (-1.5%, unlisted company whose asset value was written down based on the latest external fund raise); JSL (-1.3%, currency weakness and lack of demand for Brazilian small-cap stocks); KINX (-0.9%, delay in completion of its new data centre capacity); Grupo Traxion (-0.9%, concerns around nearshoring and Mexican currency weakness); and Serena Energia (-0.8%, for similar reasons to JSL).

Looking at UEM’s relative returns in Exhibit 10, it has outperformed the MSCI Emerging Markets Index over the last three and five years, while its share price has also outperformed over the last year, leading to a narrower discount. The trust has notably outperformed the MSCI Emerging Markets Utilities Index over all periods shown in both NAV and share price terms. It should be remembered that the managers invest in their best ideas, selected on a bottom-up basis, without reference to the composition of the reference index.

UEM’s upside/downside analysis

UEM offers a specialised yet defensive exposure to emerging markets. In Exhibit 12, we show the trust’s upside/downside capture over the last decade. In months when emerging markets stocks rose, on average, UEM captured 70% of the upside, whereas in months when emerging markets declined, the trust captured just 57% of the downside.

Valuation: Notable narrowing of the discount

As shown below in Exhibit 13, in recent months UEM’s discount has narrowed considerably. While this is a positive move, given the trust’s more than respectable performance record and the style of its investments, it is surprising that UEM’s discount is wider than those of its peers. The company has increased its profile with new and existing investors in the past few years, which will hopefully support a higher valuation, as should the increased commitment to share buybacks.

The current 11.3% discount is at the narrower end of the three-year range of discounts (10.5–22.4%) and lower than its historical averages of 16.4% over the last 12 months, 15.8% over three years, 14.6% over five years and 13.2% over the last decade. The board aspires to a sub-10% discount, and typically repurchases shares when the discount is above 10% in normal market conditions. In FY25, c 4.4m shares were bought back, which was equivalent to c 2.2% of the share base.

Emerging markets: Above average growth and reasonable valuations

In its most recent World Economic Outlook (April 2025), the IMF reduced its global growth projections in the wake of President Trump’s wide imposition of tariffs citing ‘greater policy uncertainty, trade tensions and softer demand momentum’. However, as shown in Exhibit 1, emerging markets continue to offer above-average growth prospects. Factors for this include favourable demographic trends as young and growing populations move up the education curve, a rising middle class with increasing levels of disposable income available for spending on both goods and services, and ongoing urbanisation, which is leading to increased demand for infrastructure assets.

Emerging market equities remain attractively valued versus the global market. On a forward P/E basis at the end of August 2025, in aggregate, they were trading at around a 30% discount to the MSCI AC World Index, which is dominated by the United States. At 31 August, the United States made up around two-thirds of the index and the top nine constituents were all American companies (equal to nearly 25% of the whole index). It has been widely reported that this level of concentration in the US stock market is higher than prior to bursting the dot-com bubble in 2000. If investors look to de-risk their global portfolios by reducing their US allocations, maybe in response to a tariff-led US economic slowdown, emerging markets could be a notable beneficiary. Given their relative sizes, a small switch from the US into emerging markets could lead to a significant upward move in the share prices of companies operating in less-developed economies.