Important information - the value of investments and the income from them can go down as well as up, so you may get back less than you invest.
Q: If it’s time to diversify beyond the US, which emerging market funds would you recommend? Specifically, what is your view on the long-term outlook for India?
A: Emerging markets are having a moment. After a long period of underperformance, they have overtaken American and European stocks this year. The promise of fast economic growth and a youthful workforce is enticing investors, it seems - particularly as the US dollar weakens.
Knowing how to invest in emerging markets can be tricky though. It is a broad descriptor, after all, covering swathes of Asia, South America and Africa.
A good starting point is Fidelity’s Select 50. This list - made up of our 50 favourite funds - contains several emerging market options.
Lazard Emerging Markets invests all over the world but a big chunk of its portfolio - roughly a fifth - is in Latin America, with Brazil attracting most of this investment. In contrast, the fund underweights two of the world’s biggest emerging markets: China and Taiwan.
This feeds into Lazard’s ‘contrarian’ investment approach, which aims to find companies that are cheaper than the rest of the market. The strategy has yielded some good results over the years, as shown in the graph below.
Fidelity’s Responsible Emerging Markets Equity Fund also features in the Select 50. This fund, which launched in March 2023, tries to find high quality companies with strong or improving sustainability practices. China is easily its biggest hunting ground, followed by India and Taiwan. Compared with Lazard Emerging Markets, South America takes a back seat.
We like this fund because the manager, Amit Goel, is an experienced investor in these regions and is backed by one of the industry's biggest emerging market equity teams.
A third option is Stewart Investors Asia Pacific Leaders. As its name suggests, this fund focuses on countries like India, China and South Korea. Again, quality and sustainability are key, and Stewart takes a very long-term view. This has yielded some good results in the past, but the fund has lagged its benchmark in the past 12 months.
The reason we flag the Stewart fund, however, is due to its high exposure to India. Roughly a third of the portfolio is invested in the country and its biggest holding is Mahindra & Mahindra, a Mumbai-based car company.
This takes us back to your original question: what is the outlook like for India? In recent years, India’s stock market has boomed. The country is often seen as a Western-friendly alternative to China, and it benefits from a huge, young workforce.
This year, however, President Trump has been using tariffs to punish India for buying Russian oil. Shares have started to suffer as a result. There is also a knotty question of valuation: Indian equities are some of the most expensive in the world.
Whichever fund or region you settle on, remember that investing in emerging markets tends to be riskier than investing in developed markets. Local currency weakness, corporate governance issues and political tumult have all caused problems in the past. Portfolio allocation should reflect this risk - as should your time horizon.
Read: Fidelity China Special Situations - August best-seller
Read: Invest in the ‘longevity dividend’
Read: Should I reduce the amount of funds I hold in my ISA?
| (%) As at 30 June |
2020-2021 | 2021-2022 | 2022-2023 | 2023-2024 | 2024-2025 |
|---|---|---|---|---|---|
| Lazard Emerging Markets Fund | 25.1 | -7.9 | 8.7 | 17.4 | 10.0 |
| MSCI Emerging Markets Index | 26.0 | -15.0 | -2.8 | 13.2 | 6.3 |
Past performance is not a reliable indicator of future returns
Source: Lazard, annualised total returns in GBP from 30.6.20 to 30.6.25. Excludes initial charge.
Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Select 50 is not a personal recommendation to buy funds. Equally, if a fund you own is not on the Select 50, we're not recommending you sell it. You must ensure that any fund you choose to invest in is suitable for your own personal circumstances. This information is not a personal recommendation for any particular investment. Before making your decision to transfer, please read our pension transfer factsheet. This explains the things you need to consider before you transfer, including fully comparing the benefits, charges and features offered. Pensions with guaranteed benefits and advised pension transfers are not eligible for this offer. Pension rules apply. The cashback T&Cs and exit fees T&Cs are available at fidelity.co.uk/cashback. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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