4 Top Rated Emerging Markets Funds

Emerging markets investing is not only for the brave. Here are four funds we like

Sunniva Kolostyak 26 July, 2021 | 9:23AM
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Investing in emerging markets can be a daunting prospect. Despite being part of our daily lives, UK adults often disregard the idea of investing in businesses outside of their comfort zone – which means potentially losing out on strong investments in regions where fast-paced development is taking place.

That said, the rapid growth that makes emerging markets attractive to investors does come with more risk, such as political instability, infrastructure, and illiquidity. So to make it easier to get going in these markets, we are bringing you four of our top-rated global emerging markets funds.

Top Rated EM Funds


JPM Emerging Markets

The JPMorgan’s X share class is the only UK-domiciled emerging markets fund with a Morningstar Analyst Rating of Gold. We like the fund because of its strong EM team (91 members) where analysts are expected to have deep local knowledge. It has a quality/growth bias, with 94% of assets allocated to premium names like TSMC (2330), Samsung (005930) and Sea (SE), and almost a quarter (23.56%) of its assets in stocks with a wide economic moat. Its sector weightings are largely in line with its category peers, with slightly higher exposure to consumer cyclical assets and less to energy. The fund, which has a High Morningstar Sustainability Rating, delivered 30.92% growth in 2020, but has had a more muted 2021, returning -0.26% so far due to the strong recovery of value stocks.  

Stewart Investors Global Emerging Markets Sustainability

A strong approach to investing in quality stocks has earned this fund a Silver Mroningstar Analyst Rating. Its method is to look at stocks that can deliver sustainable and predictable growth through pricing power, franchise strength and limited regulatory oversight, with a strong emphasis on management stewardship. The fund has an all-cap strategy and is benchmark-agnostic, which is why the fund has allocated considerably more to technology and consumer defensive stocks than its peers – at 34.27% and 23.45% of the portfolio respectively.

The fund had a strong 2020, returning 16.97%, and has grown 4.81% so far this year. Its three-year annualised return is 8.11% thanks to holdings like Housing Development Finance Corp (HDFC) and Marico (MARICO). The fund has also upped its shares in TSMC and Alibaba (09988), and reduced its exposure to Tata Consultancy Services (TCS) and Unilever (ULVR). 

Fidelity Institutional Emerging Markets

The EM fund has a team proven to work collectively to create a solid core portfolio, supported by an experienced manager and substantial resources. The W share class has been rated Silver by Morningstar’s analysts, although mroe expensive share classes are rated Neutral. Each potential stock has to go through three layers of due diligence and prove sustainable returns on equity, good balance sheets and shareholder-friendly management teams.

The resulting portfolio consists of 50-70 holdings. As of June 2021, the strategy had 52 names, with almost half of the portfolio in the top 10 holdings, which includes staples Samsung, TSMC and China Mengniu Dairy (02319). It has also recently reduced its exposure to Alibaba and added to HDFC Bank (HDFCBANK). In 2020, the fund returned 23.64% and is up 4.20% so far this year.  

Lazard Emerging Markets

Lazard’s S class holds an analyst rating of Silver, thanks to a veteran leadership, taking a bottom-up and disciplined approach, looking for companies with above-average returns at below-average prices. It focuses on value, which has resulted in strong yields over the long term, although performance has lagged peers since 2017 - the fund was down 2.27% in 2020 and has produced annualised returns of 3.83% over three years. However, the recent bounceback for value stocks has resulted in the highest year-to-date returns of our four funds, at 6.93%.

Compared to its peers, the fund has a high exposure financial services, holding China Construction Bank (601939), Sberbank of Russia (SBER) and OTP Bank (OTP), with a lower weighting to technology and communication services. It also only holds 4.32% of its assets in wide moat stocks, compared to the category average of 22.91%. Its largest allocations are to Samsung and SK Hynix (000660), while one of its biggest winners has been PJSC Lukoil (LKOH).

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Sunniva Kolostyak  is data journalist for Morningstar.co.uk