Higher yield from JPMorgan Emerging Markets Income

Over the past year emerging markets have struggled, though, and over 12 months the fund has lost 6.02 per cent (NAV return), compared to a 4.06 return from its benchmark index (MSCI EM (Emerging Markets) NET) - the result of cheaper valuations on its investments.

Emerging markets are cheap for a good reason, though, says Richard Titherington, manager of the JPMorgan Global Emerging Markets Income Trust (JEMI) and chief investment officer for emerging market equities at JPMorgan. But he also points out that they still have long-term growth potential - with emerging market dividends an under-recognised opportunity for investors in the year ahead.

Look at the fund over three years and reassuringly it has significantly outperformed the benchmark, managing 9.62 per cent when the index lost 4.06 per cent. It's an investment trust focused on dividend-paying companies across the world's emerging markets. Although average dividend yields on emerging markets equities tend to be lower than those on developed ones, actual payouts are rising faster and a dividend culture is gradually developing. "The EM universe overall has a modest average dividend yield of 2.5 per cent but the yield on several hundred stocks is well over 4per cent," says Mr Titherington.

For investors with a long-term horizon and tolerance for volatility, Mr Titherington says there's still stacks of growing room left for emerging markets. As shown in the chart below, massive transitions toward urbanisation under way in these developing economies show huge potential for earnings and consumption growth - but the rewards won't be seen overnight.

"If you believe emerging markets are going to improve, which we do, then the valuation entry point for the asset class is incredibly hard to ignore at less than 1.5 times price to book. This level of pessimism and uncertainty presents an opportunity," he says.

Mr Titherington also cautioned investors against building strategies around superficial emerging markets acronyms, instead highlighting the importance of factors such as stock selection and fundamental research in driving total returns.

"Emerging markets are compellingly cheap, but remain admittedly rife with risks in the short term. Vulnerability to currency volatility is a particular concern for countries dependent on foreign capital flows, as shown below," said Mr Titherington.

On US Federal Reserve tapering, he says rising rates will act as a vacuum, sucking capital back to the developed world in pursuit of stronger growth - but only to a certain extent, so investors needn't be too worried.

"A selective approach is important to navigate these divergences," he added.

The fund is currently most heavily invested in Taiwan (16 per cent), South Africa (12.0 per cent) and Brazil (11.0 per cent). These are particularly attractive dividend-paying countries, according to Mr. Titherington - particularly in sectors such as telecoms, industrials and cylicals. And, he says Russia and China have recently evolved as strong dividend-payers since both of their equity valuations have de-rated significantly.

The fund remains a good income diversifier for your portfolio - but given that it's invested in some of the riskiest markets in the world - this a long-term investment only.