Why this revamped emerging markets trust is at a 15% discount

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.

^{Source: Yahoo Finance from 23.10.18 to 20.10.23 Basis: Share price in GBP. Excludes initial charge.} 

^{Past performance is not a reliable indicator of future returns}

Managers Nick Price and Chris Tennant are free to invest anywhere in the emerging and frontier markets including in the small cap end of the spectrum and use the firm’s extensive research team to identify high-quality companies with good growth prospects and attractive valuations. They can also short sell the weakest stocks to profit from falling prices and take geared positions to boost the potential returns.

Tennant believes that companies in the region are at record cheap valuations, their lowest versus developed markets since 2002. He has recently outlined the five key themes that make emerging market equities such a compelling asset class at this point in time.

One area they are excited about is copper, which is a transition metal that will help power the low carbon economy, yet is likely to experience a significant shortfall in supply, hence their investment in copper producers based in Mexico and Peru. They also like the demographics in India where they are looking to take advantage of the growing penetration of consumer finance in the country.

Price says that the emerging markets index is as cheap as it has ever been and is trading at multi-decade lows relative to its developed peers. He thinks that the extent of the discount is at odds with the improving fundamental picture, not least because inflation has seemingly peaked and interest rates are set to start coming down.

“Given that emerging market equities have underperformed over more than a decade now, valuations are very attractive and appear out of sync with what I think is an increasingly positive fundamental backdrop for many companies.”  

Many investment trusts are currently available at double digit discounts and Fidelity Emerging Markets Limited is no exception, with the shares trading around 15% below their net asset value. Some may see this as fair value, others as a buying opportunity. It's worth remembering emerging markets carries a greater amount of risk and volatility than more developed markets which investors should bear in mind before considering more exposure to this region.

More on Fidelity Emerging Markets Limited.
 

Five-year performance table 

Past performance is not a reliable indicator of future returns

Source: FE, as at 25.10.23 Basis: Total returns in GBP. Excludes initial charge.

Source:

^1,2 Fidelity Emerging Markets Ltd Annual Financial Report, 13.10.23