Investing in emerging markets – three fund picks

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.

However, EM has been less impressive in recent years. The table below shows the performance of EM compared to the UK stock market and a global index. Performance was particularly weak in 2021, despite it being a strong year for most markets during the post-Covid recovery. China was a particular drag that year, due to concerns about heavily indebted companies and consumers.

Source: Refinitiv, from 1.1.20 to 31.12.24, based on MSCI indices and the FTSE 100.

Past performance is not a reliable indicator of future returns

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Reasons for optimism

The long-term story is that the younger economies and populations of emerging markets translate to faster growing economic growth and, potentially, better market returns. This is far from certain, but it is enticing for investors who need long-term growth and are comfortable with additional risk.

The falling dollar is helpful to emerging markets and helped power the recent rally. A weaker dollar reduces the cost of servicing dollar-denominated debt, which many EM countries hold, and encourages money into non-dollar assets. It also provides a boost to commodity prices which helps many emerging markets.

In the past, investors often worried about emerging market debts. But the situation today is very different from the 2010s. Today, debts are as big a problem in the developed world.

Reasons for caution 

Emerging markets had a strong run in the 2000s but have otherwise been a disappointment to investors for much of the century, especially in contrast to a thriving US market. There have been pockets of strong performance. India has been a standout performer over the past decade, though performance has faltered in 2025. Country specific funds offer British investors to single markets. Use our Investment Finder to look these up.

The lesson is that while EM holds plenty of promise, the ride can be bumpy and is uncertain.

What is changing now?

Emerging markets should be benefiting from a rotation of money out of the US. However, Europe has so far benefited most, possibly because investors fear a greater impact of US tariffs on emerging market countries.

But as pointed out in our most recent quarterly Market Outlook, this fear may be overplayed in some instances. The US, for example, accounts for just 3% of the revenues of companies included in the MSCI China index compared to 85% coming from mainland China itself. That’s very different from Taiwan with more than 40% US exposure or Korea with more than 15%.

How cheap are emerging markets?

Your entry point is key to investment success - buy when valuations are low and higher returns should eventually follow, although this is never certain.

The basic measure is to compare prices with declared earnings. Emerging markets are on a price-to-earnings ratio of 15, far cheaper than 28 for the US or 17 for Europe, according to analysis by Schroders (31 July). The UK is marginally cheaper on a P/E of 14. Although it’s important to consider today’s ratio for each with its own historic average. The table below sets out the P/E ratios for each investment region and shows in brackets the percentage above or below the 15-year average. Emerging markets are 13% more expensive than their historic average; the UK is 3% cheaper.

Source: Schroders Equity Lens. Figures to 31st July 2025. (Above or below the 15-year historic average is shown in brackets). 

• What is the price-to-earnings ratio and how do you calculate it

The second column introduces a more sophisticated version of the P/E ratio known as CAPE (the cyclically adjusted price to earnings ratio). This smooths out the ups and down of the business cycle which, its fans say, makes for a better measure. Emerging markets has the lowest (cheapest) CAPE score.

Finally, the third column shows dividend yield, with higher income hinting at better value. Emerging markets sit mid-table.

It’s important to note that wide valuations exist within emerging markets. India, for example, is arguably more expensive even than the US. But China barely trades in double digits in terms of price to earnings. Korea is on a PE ratio of just over 10.

What is the right amount to hold in emerging markets?

In the MSCI All Country World Index, a reflection of world stock market sizes, emerging markets make up only 10%. Even an allocation that high may be considered higher risk and only for high-growth investors. For specific help, talk to a financial adviser.

Which emerging markets funds make the Select 50?

Our list of favourite funds includes three general emerging markets funds.

• Select 50: our favourite funds - selected by experts

Lazard Emerging Markets

Ongoing charge: 1.04%

This is an actively managed fund so carries higher fees than a tracker or passive fund. It invests in companies across emerging markets, including China, India, Brazil and South Africa. The team members are 'value' investors, quite contrarian and often buy companies with depressed share prices; they have been investing on this basis for decades. The manager of this fund is ‘exceptionally experienced’, our Select 50 researchers say. 

• More on Lazard Emerging Markets

Fidelity Responsible Emerging Markets Equity

Ongoing charge: 0.95%

The fund follows a 'quality' style, favouring companies that the manager believes have attractive characteristics, such as strong management teams and responsible management of environmental, social and governance (ESG) issues. The Lazard fund, in contrast, focuses on value companies. The manager is an experienced emerging markets investor and is backed by one of the industry's largest emerging market equity teams.  It is 77% invested in Asia with 10% in Latin America and just under 10% in Africa.

• More on Fidelity Responsible Emerging Markets Equity

iShares Core MSCI Emerging Markets ETF

Ongoing charge: 0.18%

This is a passive or tracker fund, hence the lower cost. BlackRock, which runs iShares, has good experience in index tracking and the fund charge is well priced. Around 80% of the fund is invested in Asia.

• More on iShares Core MSCI Emerging Markets ETF