Analysts' top emerging market fund and trust picks

Yahoo

2 days ago

Professional investors are bullish on emerging market (EM) stocks and see them as undervalued, as a record level view US equities as too expensive, according to research.
The latest Bank of America (BAC) global fund manager survey, a closely-watched poll of professional investors, found that a net 37% of respondents were overweight on EM equities, which was the highest level since February 2023.
Around half (49%) of the 169 respondents to the August survey, published on Sunday, viewed EM equities as the most undervalued regionally.
In contrast, a record net 91% of fund managers said US stocks were overvalued and 45% said they thought the most crowded trade was being "long Magnificent 7", the group of tech giants including Nvidia (NVDA) and Apple (AAPL). Going long refers to when an investor buys shares in a company, with the belief that they'll grow in value.
The findings come as US stocks continue to climb, with the S&P 500 (^GSPC) blue-chip index and the tech-focused Nasdaq (^IXIC) notching fresh highs on Tuesday, as an unexpectedly steady headline inflation reading fuelled a market rally. At the same time, US stocks have faced turbulence throughout this year, as uncertainty over US president Donald Trump's tariff plans have dragged on markets.
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Elyas Galou, investment strategist at BofA, told Yahoo Finance UK that "emerging markets have really become the darling of institutional investors".
He explained that one factor driving enthusiasm for EM was rising optimism for China's economic growth outlook. "That's a very positive tailwind because when China grows, emerging markets do really well," he said.
However, Galou added that "really the most important factor is the dollar". He highlighted that behind going long on the Mag 7, fund managers also believed that the other most crowded trades were shorting the dollar, followed by going long on gold and then long on cryptocurrencies. He said that those were "all really the same kind of trade".
"It's all about the dollar – you own more gold, you own more crypto because you want to diversify away from the dollar," he said.
"And I think that's the cleanest investment theme of 2025 that the US dollar is heading lower and the one asset class that always benefits and does well when the dollar goes down is emerging markets," he added.
With that in mind, here are some of emerging market funds and trusts highlighted by investment experts.
JPMorgan Emerging Markets (GB00B1YX4S73.L)
For active exposure to EM, Kate Marshall, lead investment analyst at Hargreaves Lansdown, suggests looking at the JPMorgan Emerging Markets (GB00B1YX4S73.L) fund.
"The emerging markets are broad and diverse, yet we find there are few fund managers that have demonstrated an ability to outperform the market through good stock picking over the long term," she said. "Leon Eidelman, who has been involved in the management of this fund since 2013, is one of the few."
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Over his tenure, Marshall pointed out that the fund has grown 96.66%, compared to 85.47% from the MSCI Emerging Markets Index and 81.17% for the average fund in the IA Global Emerging Markets sector.
"The fund aims to deliver capital growth over the long term by investing in growing businesses across a diverse range of emerging economies such as China, India, Taiwan, and Korea," she said. "The manager aims to perform better than the market and peers by investing in high-quality companies that can sustain earnings growth over the long term."
The top holding in the fund is the world's largest contract chipmaker TSMC (2330.TW, TSM), followed by Chinese tech conglomerate Tencent (0700.HK) and South Korean memory chip maker SK Hynix (000660.KS), respectively.
Legal & General Future World ESG Tilted & Optimised Emerging Markets
For investors seeking passive exposure "with a twist", Marshall highlighted the Legal & General Future World ESG Tilted & Optimised Emerging Markets fund.
"The fund invests broadly across the emerging markets including Taiwan, India, China, South Africa and Brazil, and aims to track the performance of the Solactive L&G Enhanced ESG Emerging Markets Index," she said.
Marshall explained that the fund has exclusions such as companies that violate the United Nations Global Compact (UNCG) pact, which are those involved in controversial weapons, and firms that earn more than 10% of their revenue from tobacco.
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"The index it tracks also increases investments in companies that score well on a variety of ESG (environmental, social and governance) criteria – from the level of carbon emissions generated, to the number of women on the board and the quality of disclosure on executive pay," she said. "It also reduces exposure to companies that score poorly on these measures."
TSMC (2330.TW, TSM) and Tencent (0700.HK) are also top holdings in this fund, along with Chinese tech company Alibaba (9988.HK, BABA) and South Korean appliance maker Samsung Electronics Co (005930.KS).
The fund has generated a return of 4.62% year-to-date, compared to 4.59% from its benchmark, the Solactive L&G Enhanced ESG Emerging Markets Index.
Artemis SmartGARP Global Emerging Market Equity
Jonathan Moyes, head of investment research at Wealth Club, said that one fund his team would highlight that has been a particularly strong contributor to performance within their portfolio service is Artemis SmartGARP Global Emerging Market Equity.
"The fund has a disciplined investment approach that backs unloved and out of favour companies within emerging markets," he said. "It has a particular focus on firms that have a catalyst for recovery or have begun to deliver an as yet unrecognised improvement in the value per share."
In addition to TSMC (2330.TW, TSM), Samsung Electronics (005930.KS), Alibaba (9988.HK, BABA) and Tencent (0700.HK), other top holdings in the fund include Chinese carmaker Geely (0175.HK) and South Korea's JB Financial (175330.KS).
The fund has generated a return of 5.5% over the past year, versus 6.3% from its MSCI EM NR benchmark but is ahead of 4.7% for the average fund in the IA Global Emerging Markets NR sector, according to a July factsheet. Since its launch in 2015, the fund has delivered a return of 122%, compared to 67.4% from its benchmark and 70.7% from the average fund in the sector.
Moyes said that emerging markets had "been firmly out of favour as higher developed market interest rates has lured capital away from the region and global geopolitical and trade tensions have kept investors suitably risk adverse. The fund therefore backs out of favour companies, in out of favour markets. The result is a manager that has been animated in highlighting the exceptional value that exists within the portfolio, which trades on less than 10x earnings."
"With the prospect of impeding rate cuts from the Federal Reserve, a cooling of global trade tensions, and developed market indices hitting record highs, it would not be a huge leap of faith to expect this fund to benefit should sentiment towards emerging markets continue to recover," he added.
JPMorgan Emerging Markets Investment Trust (JMG.L)
For those who prefer to get exposure via an investment trust, Dzmitry Lipski, head of funds research at Interactive Investor, pointed to JPMorgan Emerging Markets (JMG.L).
"With a focus on quality and growth, the managers look from the bottom up for consistent earnings, competitive advantages and high returns on equity," he said.
"The trust historically held a modest overweight to India (21% of portfolio – circa 3% overweight) and an underweight to China (19.7% – near 9% underweight) where perceived political and economic risk weighs on conviction. Tech, financials and consumer staples combined represent over two-thirds of the portfolio and are overweight positions."
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TSMC and Tencent are top holdings, with other investments including India HDFC Bank (HDFCBANK.NS) and Argentine online marketplace operator MercadoLibre (MELI).
"Mid-term returns have been hampered by, among other factors, a persistent discount, which at 11.7% is notably deeper than five- to 10-year averages, but the team and process have proven able to outperform over the long term," Lipski added.
"Given the trust's substantial scale and tiered charge, the fee of circa 0.79% is one of the cheapest among actively managed emerging market peers," he said.
Utilico Emerging Markets Trust (UEM.L)
Interactive Investor's senior investment analyst Alex Watts highlighted Utilico Emerging Markets Trust (UEM.L), which he said is a "differentiated option investing predominantly in operational infrastructure and utilities assets in emerging markets".
"The aim is to invest in companies benefitting from global megatrends driving emerging economy growth, including 1) rising middle-classes and urbanisation, 2) decarbonisation and energy investment, 3) digital infrastructure and 4) shifting global trade," he said.
"UEM seeks to generate total returns in excess of its MSCI EM benchmark, and historically income has been a not insignificant component of returns given the cash generative capabilities of many portfolio companies."
'The trust is benchmark-agnostic given its focus on utilities, transport infrastructure or comms businesses," Watts added.
For example, he pointed out that China and India account for a combined half of the benchmark and Brazil forms just less than 5%. And yet UEM's largest single country allocation is to Brazil (20.6%), he said, followed by China (11%), along with "notable" allocations across Vietnam, the Philippines, and the Middle East and North Africa (MENA). Meanwhile, India makes up under 8% of the portfolio.
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As for sectors, Watts said utilities and industrials make up the bulk of the portfolio, with companies providing/servicing electricity comprising a 20.7% share, along with a 17.2% allocation to water/waste and 14.5% to digital data infrastructure. Top holdings include Brazilian waste treatment company Orizon Valorizacao de Residuos S.A. (ORVR3.SA) and Amsterdam-listed Polish logistics operator InPost (INPST.AS).
'UEM historically has made use of its trust structure," said Watts. "It's able to allocate to unlisted assets (albeit used sparingly currently) and can leverage to enhance returns (now 2% geared). A dividend is paid quarterly, and UEM has a good record of growing this year on year (covered by income). The historic yield stands at just under 4%."
'The trust has suffered a lingering discount of recent (surpassing 20% in recent months but since recovering to nearer 12%), but has recently implemented new mechanisms (including a performance-linked tender offer) to hopefully curtail this issue," he added.
"Performance can be expected to differ notably from benchmark returns but this has often been a positive. In all, the trust's absolute and relative returns are strong, with three- and five-year returns comfortably exceeding MSCI EM benchmark."
'Bullish' emerging markets
BofA's Galou said that one potential headwind for emerging markets would be a stronger dollar caused by a "growth scare" in the US.
"What I fear is that as the US economy slows or if the US economy slows further, for instance with the August non-farm payrolls confirming that the labour market is cooling more rapidly than the consensus is expecting, there is ... a rotation to defensive that typically favours the dollar," Galou said.
At the same time, he believed that a pullback on emerging market stocks could be an opportunity to add to those positions.
"We think so because we are bullish emerging markets, we are bullish China and we are bearish the dollar, these are two of our core views over the next few years," he said.
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