The return of the high street?

One of the most recognisable high street names is Greggs (LSE:GRG). The bakery firm is looking to expand following impressive results. 

Despite this, its share price has fallen 28.5% in the past six months. It’s currently trading at 1,880p.

The business recently released results for the 13 weeks to 1 October. The report showed that sales were up 14.6%, year on year. 

Additionally, the company opened 90 new shops on a net basis. This is an indication that the firm has recovered to a position where it can once again focus on expansion, following a difficult period during the pandemic.

What’s more, it declared an interim dividend of 15p per share. This is consistent with last year, and it’s good to know that I could derive income from my investment. 

That said, I know this dividend policy may be subject to change in the future.

Greggs is facing inflationary pressures and expects inflation for the whole of 2022 to come in at 9%. However, the real number may be significantly higher.

Although this may be a problem, the business sought to act early and has forward purchased much of its food and energy. This gives me hope that it may not get hit too hard by rising costs.

Emerging markets recovery?

The second company that may be good value for my portfolio is Ashmore (LSE:ASHM). I already own shares in this emerging markets asset manager, but I suspect now may be a good time to add to my position.

The shares are down nearly 12% in the past six months and trade just above the £2 level.

The riskier emerging markets sector has been hit hardest by economic developments, like higher interest rates. 

It’s therefore no surprise that Ashmore reported a 32% decline in assets under management for the year ended 30 June. 

Furthermore, over the same period, operating profit fell from £192.9m to £119.2m. 

While this may seem disappointing, I always remember that Ashmore invests with a long-term mindset. 

With a diverse portfolio, including exposure to many up and coming Asian economies, I think the business could produce improved results as the economic shock of the pandemic passes.

It also has an attractive dividend yield of 8.11%, which is one of the highest on the market. I have already benefited from dividend payments as an existing shareholder.

Overall, both of these companies could be in strong positions to grow over the long term. Although Ashmore’s share price has fallen far below my entry level, I will buy more shares soon to reduce my average weighted price. In addition, I’ll buy Greggs shares to gain exposure to the recovering high street.

One of my primary passive investment strategies involves finding good quality companies that offer a high dividend yield. This can act as a great form of diversification within a portfolio, as a steady stream of additional income can help to offset short-term share price falls.

I have found that the UK’s second largest index, the FTSE 250, is often a good source of high dividend-yielding companies. Although, this yield alone is often not enough to warrant adding a share to my portfolio.

abrdn

The first company on my list is abrdn. The company provides a variety of investment services, primarily global asset management. It has had a difficult time in the last few years, falling 42.9% in 2022. Furthermore, the share is down almost 60% from pre-pandemic levels.

From an income perspective, the most appealing aspect of this share is the 10.6% dividend yield. This far exceeds the current index average of 3.3%, and is very tempting on the surface. The company has also paid a dividend consistently for 16 years, which is another good sign.

However, this is not the full story, as the company has struggled with earnings over the last few years. Headline earnings and cash generation have fallen considerably. This has consequently impacted its dividend-paying ability, with a dividend cover of just 0.6, meaning that it will struggle to pay dividend at this current level.

As a result, I would not currently consider adding abrdn to my portfolio, despite the attractive dividend yield.

Royal Mail Group

The second company on my list is Royal Mail Group, arguably one of the most well-known publicly listed companies in the UK. Its main business sectors are UK postal and delivery services, along with non-UK equivalents. Despite a very strong 2020 and 2021, the company has suffered in the last year, down 61.2%.

As with the previous example, the company offers a very enticing dividend, with a yield of 10.2%. This level once again is far in excess of the index average, and the yield is forecast to increase by over 8% in the next year.

Unfortunately, on further inspection, this may not be as good of an opportunity as it seems. The company has experienced declining profitability, and debt levels have soared. Despite the history of consistent dividend payments, these underlying fundamentals are not encouraging.

For that reason, I would also not be tempted to add Royal Mail Group to my portfolio as an income-generating share.

Ashmore Group

The final share on my list is Ashmore Group, an asset management company focusing on emerging market assets. The company has fallen 27.1% in 2022, marking three years of poor share price performance.

The dividend of 8% is not the most extreme on the list, but still comfortably in excess of the FTSE 250 average. I am encouraged by the company’s track record, consistently paying dividends over 16 years. However, it too has struggled with earning declines, and dividend affordability may start to come into question.

Although Ashmore Group is probably the most tempting of the three to add to my portfolio, I am still not persuaded due to the underlying fundamentals.

Investment manager

As a quick reminder, Ashmore is one of the leading investment managers in the world. It is a specialist value-oriented asset manager and focuses on emerging markets. As I write, it has over $60bn worth of assets under management with global exposure.

So what’s happening with Ashmore shares currently? Well, as I write, they’re trading for 203p. At this time last year, the stock was trading for 356p, which is a decline of 42% over a 12-month period. I’m not concerned by this share price drop — in fact, it could be an opportunity to buy cheap shares currently. Many UK shares have fallen due to macroeconomic headwinds as well as the tragic events in Ukraine recently.

A FTSE 250 stock with risks

The investment sector has suffered at the hands of the economic volatility in recent months caused by soaring inflation. This has also caused a cost-of-living crisis, too. Due to these issues, many investors have been withdrawing funds and this has been something affecting Ashmore as well. This could have an impact on performance, investor sentiment, and returns.

Next, I view Ashmore as a stock that could boost my passive income stream (more on that later). However, I am aware that dividends are never guaranteed. They can be cancelled at the discretion of the business to conserve cash. This can happen when the economy is volatile, like now. This is a development I will keep an eye on.

Impressive results and my verdict

Let’s drill down into Ashmore’s results then. It reported that total assets under management totalled $64bn. Total outflows of $13.5bn were higher than anticipated but it pointed towards inflation and geopolitical issues as the reason behind this. Revenue dropped by 13% compared to last year. On a positive note, it managed to reduce operating costs by 7%. On a positive note, it managed to strengthen its balance sheet with close to £800m worth of capital resources available, including £542m worth of cash. The best part of these results for me were the fact it was able to maintain its dividend of 16.9p per share.

So what does that all mean for me as a potential investor like me? Well, I anticipated that operations, outflows, and revenue would be adversely affected. However, I also thought Ashmore’s dividend would be cut. I was wrong, and in this case glad I’ve been proven wrong. Ashmore has shown resilience in a tough time and it seems it has plenty of cash to weather current stormy waters and continue to reward shareholders. A dividend yield of over 8% is enticing. This is nearly four times the FTSE 250 average of 1.9%.

In conclusion, I believe Ashmore shares could be a good option to boost my passive income stream. It has also shown good levels of toughness in the face of a volatile economic picture. An enticing dividend yield, and plenty of cash to back this up, helps me build my investment case.

One of them is Vistry Group (LSE: VTY). Formerly Bovis Homes, the housebuilder has seen its share price slide this year.

Vistry will post first-half results on 8 September, and I suspect they’ll be pretty decent. I’m basing that on the interim updates we’ve already had from Taylor Wimpey and Persimmon in August.

Both reported a healthy start to 2022, despite rising interest rates. The full effects of inflation won’t be seen for a while yet, though. So we might not actually see any improvement in housebuilder share prices in the second half of the year.

Vistry, meanwhile, is on a forecast dividend yield in excess of 6%. And after an H1 share buyback programme, it doesn’t seem to be short of cash.

Investment

Before that, though, on 2 September, we’ll have full-year results from Ashmore Group (LSE: ASHM). Ashmore is an investment manager specialising in emerging markets. And, like the whole investment sector, its share price has been suffering.

The sector could suffer more pain on two counts. Firstly, a lot of investors are withdrawing funds from equity investments. And secondly, as stock values suffer, investment managers lose out in performance-related fees.

Ashmore’s dividends don’t offer the highest yields on the market. But they have two things going for them. Last year’s was more than twice covered by earnings, so I see a safety buffer there.

And if the same 16.9p payment is maintained this year, it would yield 8%. I think there’s a fair chance the final dividend might be reduced. But the company already maintained its interim dividend at 8p per share.

Solar

My final pick is Foresight Solar Fund (LSE: FSFL), and we should have first-half figures on 15 September. Foresight is different from the other two — its share price has risen in 2022.

The investment company puts money into solar power farms in the UK, Australia, and Spain. And it’s got to be sunny in at least one of those countries, right? Seriously, though, the weather does bear on the efficiency of solar power.

But Foresight isn’t one of those ‘jam tomorrow’ renewable energy hopes. No, it’s making profits and generating cash to pay dividends. Forecasts suggest a yield of around 5.4% for the current year, even after the share price rise.

We are still in relatively early days for the industry, and I suspect there could be a little volatility in the medium term. But I see a decent candidate for a long-term investment here.

Second half

The big hurdle facing all three of these companies is the second half of 2022. More specifically, the big unknowns regarding just how bad the economy might get before things improve.

So I’d be wary of making any investment decisions just on these upcoming events. But I will use them as a basis for further research.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

DS Smith

What it does:  A provider of sustainable packaging solutions, paper products and recycling services. 

By Paul Summers: Down a third in value in the last year. DS Smith (LSE: SMDS) has given up most of the share price gains it made in the post-pandemic recovery. 

But I wonder if the market has become too bearish. The new financial year has “started well” according to the company and management expects “further substantial improvement in performance” in FY23.

An increase in capital expenditure was never likely to be celebrated but, on a more positive note, the shares now trade at just eight times forecast earnings. 

The dividends look pretty solid, too. DS Smith is forecast to yield 5.7% in the current financial year. This payout should be covered by expected profit if analyst predictions are hit.

As a source of passive income as part of a diversified portfolio, I think the shares are worth a closer look. 

Paul Summers has no position in DS Smith

Clarkson 

What it does: Clarkson provides an array of shipping services such as shipbroking. 

By Royston Wild. Resilient trading at shipbroking giant Clarkson (LSE: CKN) suggests (to me at least) that this remains a top dividend growth stock to buy. 

Cyclical businesses like this face the risk of cooling profits as global growth stalls. But trading conditions at Clarkson remain white hot (it said last month that it expects profits in 2022 to come in “materially ahead of its previous expectations.”). 

Shipping rates remain solid as vessel shortages of all classes roll on. Meanwhile, the war in Eastern Europe has pushed up rates, too, as ships bound for Russian and Ukrainian ports are diverted to already-packed ports elsewhere. This is removing even more capacity as vessels sit waiting to unload their cargoes. 

City analysts think Clarkson’s earnings will soar 22% year-on-year in 2022. And so they are tipping exceptional dividend growth as well, to 92.2p per share. That would represent a 10% year-on-year increase.

This projection creates a healthy 2.7% dividend yield. And the predicted dividend payment is covered 2.3 times by anticipated earnings, too.

Royston Wild does not own shares in Clarkson. 

Hargreaves Lansdown

What it does: Hargreaves Lansdown is the largest provider of retail-focused investment services in the UK.

By Edward Sheldon, CFA. Hargreaves Lansdown (LSE: HL) shares have experienced weakness in 2022 and this has pushed the dividend yield up to a very attractive level. With analysts expecting the group to pay out about 40p in dividends for the year ended 30 June 2022, the prospective yield on offer here is currently around 4.6% – considerably higher than the average FTSE 100 yield.

But this stock isn’t just about dividends. In my view, it has the potential to reward investors with healthy long-term capital gains as well. The reason I’m bullish here is that Hargreaves Lansdown is essentially a play on the world’s stock markets. And markets tend to rise over time.

One risk to consider here is that new competitors are emerging. These companies could potentially steal market share from Hargreaves. However, with the stock currently trading on a P/E ratio of less than 20, I think a lot of this risk is already priced into the stock.

Edward Sheldon owns shares in Hargreaves Lansdown

DS Smith

What it does: DS Smith is the UK’s leading manufacturer of recycled paperboard and corrugated packaging.

By Zaven Boyrazian. With consumer spending declining, e-commerce businesses haven’t had the best time in 2022. Yet, looking at the bigger picture, our current economic environment is ultimately a short-term problem. And online spending continues to grow as a proportion of total retail spending.

That’s why DS Smith (LSE:SMDS) has caught my attention. The cardboard manufacturer doesn’t have an exciting business model. But it does provide a critical product for the e-commerce sector.

With investor confidence at record lows, the stock has dropped by over 37% in the last 12 months. Yet looking at the latest results, sales and profits are up by double digits. But more excitingly, its return on capital employed has jumped from 8.2% to 10.8%, on track to hitting management’s long-term target of 20%.

In other words, despite headwinds, DS Smith is generating impressive growth and value for shareholders. Paring that with a discounted share price spells a buying opportunity for my portfolio, in my opinion.

Zaven Boyrazian does not own shares in DS Smith.

M&G

What it does: M&G is an investment manager that offers savings and investment products across a number of countries.

By Christopher Ruane. For M&G (LSE: MNG), could August be a big month?

I think the answer may be yes. Interim results are due to be released on 11 August. The company’s policy of maintaining or increasing its dividend annually seems to make the shares attractive – if the firm can keep delivering on it.

Last year, the interim dividend rose by 1.7%. But the full year dividend increase was a meagre 0.4%. With a strong brand, long experience and a substantial customer base, the firm has a recipe for profitability. I see the risk of clients withdrawing funds as a threat to profits in coming years. The company reported net inflows of client funds last year. Hopefully that positive trend has continued.

Meanwhile, the dividend yield is 8.4%. So I do not mind if M&G delivers another modest rise or none at all. As long as the firm does not cut its dividend, I think the income opportunity here is attractive.

Christopher Ruane owns shares in M&G.

Ashmore

What it does: Ashmore is an asset management firm that has a presence across the globe and specialises in emerging market investing.

By Andrew Woods. Ashmore (LSE:ASHM) has been consistent with its dividend policy over the past five years. During this time, it has paid well above 16p per share every year. For the year ended June 2021, the firm paid a total dividend of 16.9p per share. At current levels, this equates to a dividend yield of 7.99%. For me, this is appealing.

In the current economic climate, however, customers have generally been more risk-averse, meaning that emerging market investments have suffered. This has been caused by a multitude of factors, including inflation and interest rate hikes. To that end, in June the company’s assets under management declined by 18.3%, quarter on quarter.

However, for the six months to 31 December, the business beat earnings expectations of £89m, instead posting £92m. Furthermore, over the long term the company continues to report consistent growth. Between 2017 and 2021, for instance, pre-tax profit and revenue continue to increase markedly.

Andrew Woods owns shares in Ashmore.

Vesuvius

What it does: Vesuvius makes equipment used in foundries to handle molten metal and control its flow.

By Roland Head. Vesuvius (LSE: VSVS) can trace its history back over 100 years, to the fast-growing US steel industry of the early 20th century.

Today, the company’s product range is broader and more sophisticated. But its core specialism of handling molten metal is unchanged. I think that’s attractive — this business is a market leader in a very specialised market.

Another big attraction for me is that more than 95% of the parts Vesuvius sells are consumables. These need regular replacement.

The only real risk I can see is that customer demand could slow during a severe recession.

I see that as an acceptable risk, especially as Vesuvius is tapping into new growth markets like wind energy.

Management recently reported strong trading and a positive outlook for the rest of the year. Vesuvius shares currently offer a well-supported 6.5% dividend yield. I see this dividend stock as a good buy in August.

Roland Head does not own shares in Vesuvius.

Well, that approach might be simple. But it’s not without risks, and it does overlook a whole horde of dividend shares out there that I think are cheap at the moment.

So today, I’m looking at three companies that I rate as having solid long-term income potential. But they don’t figures in lists of biggest yields today.

Contrarian

My first pick is one that investors have been shunning all year. It’s Royal Mail Group (LSE: RMG), whose share price has fallen by more than 40% over the past 12 months.

The situation described in the company’s Q1 update is not pretty, with group revenue down 5.1%. An adjusted operating loss added to the gloom. Oh, and it looks like we’re in for strike action too, which has further hit the share price.

But what was it Warren Buffett once said? That he tries to be greedy only when others are fearful? Well, all the fear has pushed the forecast dividend yield above 7% now. And analysts have it reaching 8% by 2024.

It might come under pressure, as Royal Mail continues with its transformation plans, and I think we’re looking at a risky buy. But I reckon this could be a good time to lock in some decent long-term income now.

Houses

I can’t look at long-term income shares without considering the building sector. And today my pick is Bellway (LSE: BWY). And look at that last little bit of the chart above — it might even be starting to pick up now.

While the Bellway share price is down, its forecast dividend yield has been pushed up above 5.5% now. And if analysts have it right, it could climb above 6% by 2024.

Cost pressures are mounting on the business, through supply chain difficulties and inflation. But in its June update, Bellway told us that “ongoing positive price momentum continues to offset build cost inflation“.

If we’re in for a prolonged economic downturn, I can see pressure continuing on the whole sector and maybe more share price weakness. But I see strong long-term cash generation, and a chance to nail down some healthy dividends.

Sentiment

With sentiment towards investment managers, I just have to include one today. And it’s Ashmore (LSE: ASHM), whose share price is down 45% in the past 12 months.

Ashmore is under more pressure than some of its peers, as it focuses on emerging markets. During a global economic crisis, that’s not where most people want their money. And it’s seen assets under management falling due to a combination of cash outflows and negative investment performance.

But if they hold up, forecast dividends for 2022 and beyond would yield around 8%. Yes, the dividend could well come under pressure. But even if it’s cut, I see a good chance it will bounce back in the long term. Even with the emerging market risk, I think this could be another income share to tie down now.

Here I’m examining three shares that have recorded 12-month falls of around 50% or more, and thinking about whether they look like good buys for investors now.

Ocado

I’m starting with online groceries pioneer Ocado (LSE: OCDO), which has seen a 58% fall over 12 months. We’re looking at another of those boom-and-bust stocks here, with the shares having previously soared in 2020 as the pandemic spread.

A growth in online shopping like we saw in 2020 was always going to boost business for companies like Ocado. But it can’t substitute for actually making a profit, which Ocado has never done, not even in 2020.

In the early Ocado bull run, my biggest fear was that multiple funding rounds would be needed. And we’ve just seen a new one, with the company raising £578m through a share placing.

With the latest funding in place and the Ocado share price down so far, is it a bargain now? I still think there’ll be significant risk until we see profits. But it just might be a good buy.

Cineworld

Cineworld Group (LSE: CINE) suffered in the pandemic, as lockdowns kept people away from the movies. After a partial recovery in 2021, the shares are on the way down again. Cineworld has fallen 74% in the past 12 months.

But business appears to be strengthening, and the company reported a decent profit in 2021. We have to wait until September for first-half results this year. And investors’ attention could drift in that time.

Cineworld is heavily shorted by hedge funds, but they do sometimes get it wrong. In this case, it surely has to hinge on the outcome of the company’s legal battle with Cineplex. A $1bn damages judgment is currently against Cineworld, but it’s under appeal.

If Cineworld is unsuccessful, it will be in trouble. Right now I see an investment as a gamble. As I remember hearing in a movie once, the question is “Do I feel lucky?“

Ashmore

Ashmore Group (LSE: ASHM) shares didn’t quite make the 50% fall, at 46% over 12 months. But I’m stretching it slightly, as this is the stock I like best of the three.

Ashmore is an investment management company, focusing on emerging markets. The sector can be resilient during economic downturns. But in this case, the emerging markets thing adds extra risk.

Assets under management declined $9bn, or 10.3%, in Q3. Of that, only $3.7bn is down to net outflows, so I don’t see any need to panic. There’s short-term risk, especially as fallout from the war in Ukraine continues. But I think emerging markets assets could be especially good for investors to get into during tough times, with a long-term approach.

Ashmore is the one I’d be most likely to buy for my ISA, of these three potentially cheap shares.

I’ve been hunting through the wider market and have found three FTSE 250 dividend stocks that look too cheap to me. They’re all stocks I’d be happy to add to my portfolio today with a spare £1,000.

A bargain 6% yield?

Television group ITV (LSE: ITV) is seriously unloved at the moment. This former FTSE 100 company saw its share price slump 25% at the start of March, after CEO Carolyn McCall revealed plans to “supercharge streaming“.

This strategy seems logical to me. ITV has a 33% share of UK commercial television viewing. To protect this market share, the company needs to expand its share of UK on-demand viewing.

The extra spending required will hit ITV’s profits for a couple of years. That’s a risk. However, my sums suggest the dividend should be safe throughout this period, giving a forecast yield of 6.2% at current levels.

ITV’s share price slump has left the stock trading on just six times earnings, despite its strong financial position. I reckon this is too cheap. I continue to hold and would be happy to buy more.

Cheap industrial stocks

Another FTSE 250 stock that’s come onto my radar recently is precision measurement specialist Spectris (LSE: SXS).

This £2.8bn group has a range of businesses that produce measurement instruments, test equipment and simulation software for industry. It operates in a range of attractive sectors, including pharmaceuticals and electronics.

The Spectris share price has fallen by nearly 20% since the company revealed plans to buy fellow high-tech specialist Oxford Instruments for £1.8bn. However, the company has now withdrawn from this deal, blaming market disruption caused by the Ukraine conflict.

I think Spectris’ growth might slow if western countries suffer a recession. But the company has cleared its debts and the shares look affordable to me.

Spectris’ forecast price to earnings ratio of 15 may not seem obviously cheap, but this company has high profits margins and specialist products. I think it deserves a small premium. I’d be happy to buy at this level.

Unfairly cheap?

My final pick is emerging markets asset management specialist Ashmore Group (LSE: ASHM). This £1.7bn FTSE 250 company is run by founder Mark Coombs, who still owns more than 30% of the stock.

I think this should mean Coombs’ interests are aligned with those of other shareholders.

However, one problem with this business is that its profitability is linked to market cycles. After a strong run of growth from 2018 to 2021, analysts expect Ashmore’s profits to fall this year as market conditions weaken. One concern is the company’s exposure to China’s troubled property market.

There are always risks when investing in shares. But Ashmore has a diversified portfolio, experienced management and is highly profitable.

The shares now trade on just 11 times earnings, with a covered 7% dividend yield. This is one cheap stock I’d buy today.

• Ashmore Group has a compound annual EPS growth rate of 7.7%
• FirstGroup’s bus operations are heading back towards pre-pandemic levels
• These two companies could provide growth over the long term

The FTSE 250 is full of interesting stocks that have delivered growth over the years. I’ve once again returned to the index to find two more companies to add to my portfolio. My plan to to hold shares in these businesses for the long term, because I firmly believe that this strategy yields the best results. Why do these companies fit the bill? Let’s take a closer look.

A FTSE 250 asset manager

The first firm is an asset manager specialising in emerging markets, Ashmore Group (LSE:ASHM). Much of its holdings are based in Asia. Investing in a company of this sort is a double-edged sword, because when panic hits the markets, emerging market assets are usually among the first to fall. This is caused by their higher risk classification. In rising markets, however, this asset class can do very well indeed. Ashmore currently trades at 230p, down 41% in the past year.

For the years ended June 2017 to 2021, company revenue increased from £257m to £292m. What’s more, profit before tax rose from £206m to £282m. Unsurprisingly, therefore, earnings per share (EPS) grew from 25.07p to 36.4p.

By my calculation, this results in a compound annual EPS growth rate of 7.7%. This is both strong and consistent. It should be noted, however, that past performance is not necessarily indicative of future performance.

In a trading update for the three months to 31 December 2021, assets under management decreased from $91.3bn to $87.3bn. While the company has focused on acquiring oversold assets during the recent stock market correction, there is always the further downside market risk that could be negative for the Ashmore share price.

A travel recovery stock

The second stock I’m buying for the long term is FirstGroup (LSE:FGP), a UK and North American operator of trains and buses. It currently trades at 107p, up 17.7% in the past year.

For the fiscal years 2020 and 2021, revenue was flat at about £4.6bn. However, profit before tax in 2021 was £75.2m, a massive improvement from the £388m loss recorded in 2020. As my Motley Fool colleague James McCombie recently reported, the sale of US segments in 2021 bolstered the company’s balance sheet. 

In a recent trading update for the three months to 31 December 2021, bus operations climbed to 70% of pre-pandemic levels. This was about 75% in parts of England. This in encouraging news, because it shows operations are not far away from normal conditions.

In addition, train services were running in line with expectations. Nonetheless, there is always the risk of further Covid-19 variants impacting operations. This could have a negative impact on the FirstGroup share price.

Overall, these two FTSE 250 stocks exhibit consistent growth. Over the long term, as markets recover and travel returns to normal, I think these companies could produce strong results. I will be buying shares in both today.  

But emerging markets have been underperforming lately. And at 285p, Ashmore’s stock price is down about 37% over the past year.

Several emerging market stocks are down

However, Ashmore isn’t the only stock in the sector that’s down on its luck. Two such beasts reside in my own portfolio. I’m holding Fundsmith Emerging Equities Trust (LSE: FEET), which at 1,305p is down around 16% compared to one year ago. And I’ve got shares in Vinacapital Vietnam Opportunity Fund, which at 499p is about 9% lower in 2022 so far. But in fairness, it’s up by around 14% over the past year.

Ashmore’s chief executive Mark Coombs said in a trading statement this week that the firm’s recent operational underperformance arose because of challenging conditions. He pointed to things such as “persistent global inflation expectations, new Covid-19 variants and weaker growth in China”. 

But looking ahead, Coombs is optimistic about a recovery in emerging markets — and it could be soon. He thinks the global macro-economic environment looks set to improve and that could help emerging markets to thrive.

For example, he sees firmer commodity prices as a positive. And he thinks valuations already accommodate higher base interest rates. However, he feels emerging market equity and income valuations don’t account for much of the positive outlook. If he’s right, there could be an interesting value situation now with emerging market stocks and investments.

The case for investing

But why should I bother targeting investments in emerging markets? To answer that, I’m going to repeat what FEET’s chairman Martin Bralsford said in the company’s half-year report last August.

He reckons the case for investing in emerging markets “has not diminished”. There’s a growing consumer class in emerging economies. And they are being served by businesses with “strong local brands, innovative business models and some high-quality management teams“. Bralsford thinks emerging markets are catching up with the developed world and therefore continue to present good opportunities for investors.

I reckon there’s potentially good value to be had with these three stock opportunities right now. Ashmore’s forward-looking earnings multiple for the trading year to June 2023 is just below 13. And the anticipated dividend yield is around 6%. Meanwhile, FEET is trading on a price-to-earnings (P/E) ratio just below six with the price-to-tangible-book value around 0.87. And VOF’s P/E is close to just two with a price-to-tangible-book value of about 0.8.

Of course, a low-looking valuation doesn’t guarantee a decent long-term investment performance for me. And emerging markets could continue to struggle causing my investments to fall further.

But I’m optimistic that the pandemic will fade during 2022 and emerging economies will continue to recover. And I’d prefer to buy investments like these when they look cheap rather than when emerging markets are booming and the stocks look expensive.