Fidelity Emerging Markets Limited (LON:FEML) continues to stand out as a highly attractive option for investors seeking exposure to emerging markets. Managed by seasoned professionals Nick Price and Chris Tennant, FEML benefits from their extensive experience and deep understanding of the companies and management teams within this dynamic sector. The trust’s flexible, go-anywhere investment approach, combined with its ability to take both long and short positions, positions FEML as a unique and highly differentiated player in the market.
Strong Performance Driven by Active Management
Over the past 12 months, FEML has demonstrated robust performance, delivering a NAV total return of 22.1%, significantly outpacing the MSCI Emerging Markets Index, which returned 14.7%. This impressive performance is largely attributed to the managers’ effective stock selection, particularly within the short book, where notable successes included short positions in an Asian utility company and an Asian battery maker. The managers capitalised on specific weaknesses in these companies, showcasing the effectiveness of FEML’s active management strategy.
On the long side, the trust saw strong contributions from companies such as Kazakhstan’s Kaspi, which has leveraged its dominant market position across e-commerce and payments to deliver impressive revenue growth. Similarly, the recovery in international travel bolstered the performance of MakeMyTrip.com, India’s leading online travel agency. The trust also benefited from its position in TSMC, the Taiwanese semiconductor giant, which continued to see strong demand for its products.
Strategic Positioning in Emerging Markets
One of FEML’s key strengths is its ability to adapt and capitalise on emerging opportunities across diverse markets. The managers have strategically positioned the portfolio to take advantage of long-term structural trends, such as the shift towards friendshoring and nearshoring, which is benefiting countries like Mexico and Vietnam. FEML’s holdings in these regions, including companies like Grupo Aeroportuario del Pacífico in Mexico and FPT in Vietnam, are well-placed to gain from these trends.
The trust’s cautious yet opportunistic approach in China also reflects its ability to navigate complex market environments. While China’s economic reopening presented challenges, the managers have adjusted their exposure, adding positions like Anta Sports to diversify within the sportswear market. The use of options to gain exposure to China further underscores the trust’s flexible and innovative investment strategy.
Analyst’s View: A Differentiated Investment Proposition
Josef Licsauer, an analyst at Kepler Partners, highlights FEML’s differentiated approach as a key advantage. The trust’s ability to take short positions, particularly in the context of a challenging economic environment, provides a unique source of alpha that is unmatched in the AIC Emerging Markets sector. This flexibility, combined with the managers’ deep expertise and on-the-ground research, positions FEML to continue delivering strong performance, even in uncertain markets.
Licsauer also notes the proactive measures taken by FEML’s board, including a robust buyback programme and a completed tender offer, which have contributed to the narrowing of the trust’s discount. Trading at an 11.8% discount, in line with its five-year average, FEML remains an attractive option for investors seeking emerging market exposure.
In Closing
Fidelity Emerging Markets Limited offers a compelling investment proposition for those looking to capitalise on the growth potential within emerging markets. With its experienced management team, flexible investment strategy, and strong recent performance, FEML is well-positioned to navigate the complexities of the global market and deliver value to its investors. As emerging markets continue to evolve, FEML’s differentiated approach and strategic positioning make it a standout choice for investors.
