Performed strongly over the year: Fidelity Emerging Markets

Fidelity Emerging Markets Limited (FEML) is managed by Nick Price and Chris Tennant, two experienced investors who apply a disciplined, research-driven approach to identifying attractive investment opportunities across emerging and frontier markets. Their philosophy for long positions focusses on companies with strong cash generation, resilient balance sheets and governance aligned with minority shareholders, whilst using short positions to target businesses with fundamental vulnerabilities.

Over the past 12 months to 30/09/2025, FEML has delivered standout results, achieving a NAV total return of 34.3%, more than double the MSCI EM Index’s 16.9%, and a share price return of 40.3%, reflecting its narrowing discount. Notably, much of this strength has come in the last six months, with stock selection a key driver of Performance. Materials holdings such as Pan African Resources, AngloGold Ashanti, Endeavour Mining and Peru’s Buenaventura were among the top contributors, supported by solid operational momentum and strength in gold and copper prices. Technology names, notably Taiwan’s Elite Materials, also performed strongly. Not everything worked, however, as weakness in select financials, including India’s ICICI Bank and Five Star Business Finance, Kazakhstan’s Kaspi and Georgia’s TBC Bank, weighed on relative returns.

Many emerging markets rebounded sharply from the initial tariff-driven sell-off following Liberation Day. Renewed optimism around domestic demand, governance reforms and regional trade has fuelled a sharp recovery. FEML’s positioning among long positions in high-quality, cash-generative businesses has captured this rebound effectively, underlining the value of its differentiated approach. Over the year, the managers used recent market deratings to add selectively to quality names in the long book, including TSMC and Elite Materials, and also added several new short positions in companies with weakening fundamentals and over-levered balance sheets (see Portfolio).

At the time of writing, FEML trades on a 8.9% Discount, narrower than its five-year average of 11.6%.

Despite volatility in major markets like China and India, broader emerging and frontier regions have shown stronger returns and lower volatility this year than many might have anticipated, surprising investors who have long associated these regions with dependency on US demand or low-cost export models. In a year marked by trade tensions, shifting US tech sentiment and tariff uncertainty, these markets have quietly staged a notable comeback. We think improving governance, rising domestic investment and deeper regional trade links are increasingly driving performance, whilst valuations in many markets remain attractive relative to developed peers. After a challenging few years, emerging markets have regained their footing and are once again drawing investor interest as a genuine source of diversification beyond the US.

Within this context, we think FEML stands out for its genuinely active and differentiated approach. The managers use derivatives to express their views with precision, increasing exposure to companies with strong upside potential whilst taking short positions in those with red flags around their balance sheets or facing structural headwinds. This dual capability introduces a valuable source of differentiated alpha that sets FEML apart from most long-only peers, all delivered at a comparatively low cost, the second lowest in the sector (see Charges).

Whilst this approach has delivered strong results in a year marked by uncertainty, demonstrating the value of its differentiated proposition, it can also lead to periods of greater volatility or divergence from the benchmark, particularly when markets move sharply against high-conviction positions. Emerging markets themselves remain exposed to external shocks, currency fluctuations and shifts in investor sentiment. Even so, we think FEML’s differentiated proposition makes it a compelling long-term option for investors seeking exposure to emerging markets’ complex and evolving potential. If its performance momentum and the broader revival in emerging market sentiment continue, there could be further scope for the discount to tighten.