2026 fund picks: Lazard Emerging Markets

Emerging economies are characterised by high growth rates and favourable demographics, offering investors exposure to markets with strong long-term potential. This can translate into superior returns, especially when the global macro environment - most notably the interest rate cycle - is supportive.

If US interest rates continue to fall, as many expect, then it is likely that the dollar will experience further weakness on the foreign exchanges. Such a scenario would tend to be favourable for emerging markets (EM), with a potential beneficiary being Lazard Emerging Markets, which is one of Tom Stevenson’s fund picks for 2026.

A depreciating US dollar is generally positive for emerging markets, as it lowers dollar-denominated debt servicing costs, supports commodity exporters and provides greater scope for central banks to ease monetary conditions. With the Federal Reserve expected to continue cutting rates, it suggests a supportive environment for the region in the year ahead, although risks remain, as highlighted by the recent events in Venezuela.

Objective and approach

Lazard Emerging Markets aims to outperform the MSCI Emerging Markets Index with a lower level of volatility. It typically invests in the securities of companies domiciled in the region that are sufficiently liquid and that have a market value of over $300 million.¹

There are many funds in the sector, but manager James Donald and his team differentiate themselves through a quality value approach. They focus on relative value opportunities, investing in companies that are attractively priced in relation to the strength and sustainability of their financial profitability.²

The Lazard team have successfully applied this strategy across emerging markets for decades, which is why it has been included in Fidelity’s Select 50 list of handpicked funds.³ It has become a significant part of Tom Stevenson’s personal portfolio over the past year.

What are the managers’ latest views?

In a recent interview, Donald described the approach as a quality value portfolio focused on companies with relatively high and stable returns on equity (ROE) that the team believes are mispriced by the market.

He highlighted attractive opportunities in parts of Latin America, where valuations remain very low and both global and local investors have become disenchanted. Political uncertainty and high interest rates in countries such as Brazil have put people off, despite the fact that a lot of companies are still doing good business there. Donald doesn’t believe that these depressed valuations will be in place for long.⁴

The underlying portfolio

At the end of November, the fund held 85 positions, with the ten largest accounting for 22.8% of the assets. It differs significantly from the MSCI Emerging Markets benchmark, as reflected in the active share of 81.2%.⁵

Top 10 holdings

1. TSMC (Taiwan)
2. SK Hynix (South Korea)
3. ASE Technology (Taiwan)
4. China Construction Bank (China)
5. Wiwynn (Taiwan)
6. Shinhan Financial (South Korea)
7. Indus Towers (India)
8. MediaTek (Taiwan)
9. KB Financial (South Korea)
10. OTP Bank (Hungary)

Source: Lazard Emerging Markets Fund factsheet, 30 November 2025

The largest regional underweight is Emerging Asia, which represents 58.5% of the fund compared to 80.6% of the index, while the biggest overweight is Emerging Latin America at 18% versus 7.6%. These decisions have resulted in an attractively valued portfolio with a higher ROE of 15.5% against the 13.1% from the benchmark.⁶

This is reflected in a lower forward price/earnings ratio, a lower price-to-book ratio and a higher dividend yield. The approach has also delivered lower volatility than the index over the past three years, meeting the risk-related element of the fund’s objective.⁷

Performance and cost

Emerging markets were the best-performing asset class last year, rising almost 25%. Their resurgence was driven by a powerful combination of factors including: improving liquidity conditions, the sharp reversal of US exceptionalism, a weaker dollar and the appeal of relatively low government debt levels compared with developed markets.⁸

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. This fund can invest in overseas markets and so the value of investments can be affected by changes in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Before investing, please read the relevant key information document which contains important information about the fund. 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. Eligibility to invest in an ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. 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.