Time to party
Things are looking up for emerging markets, says Ian Cowie
After more than a decade of relative underperformance, global emerging markets investment trusts – focused on countries as diverse as Brazil, China and Saudi Arabia – are now living up to their name by outshining many rivals in more developed economies. The ten trusts that comprise the AIC Global Emerging Markets sector delivered average total returns of 27% over the last year; that’s double the 13% average for all investment trusts.
“The ten trusts that comprise the AIC Global Emerging Markets sector delivered average total returns of 27% over the last year; that’s double the 13% average for all investment trusts.”
Better still for long-term investors, emerging markets trusts also outshone their rivals over the last five years and decade with total returns of 45% and 191%. By contrast, investment trusts of all descriptions delivered 42% and 154% over the same periods.
More importantly, there are good reasons for investors today to consider emerging markets exposure in the hope they can continue their recent recovery in future.
First, the world’s biggest currency – the US dollar – has lost more than a tenth of its value since the start of this year compared to a basket of other major currencies. That decreased the cost of servicing emerging markets’ debts – which are often denominated in dollars – and increased the value of the commodities they export; a double-whammy boost from exchange rates.
Second, political risk often deterred investors from backing emerging markets trusts in the past but more recent events have demonstrated that this factor can be a worry in developed economies, including the biggest one in the world. American president Donald Trump’s unpredictable policies may have played a part in the weakness of the dollar.
Third, global diversification across different companies, countries and currencies is one of the simplest ways to diminish the risks inherent in stock market investment. So, after more than a decade of American outperformance, with many share prices at or near all-time highs, it might be a good time to consider exposure to economies with lower costs of labour and materials.
Fourth, the internet has shrunk the world, making it easier to conduct a wide variety of sophisticated commerce in emerging markets. Emerging markets trusts now offer exposure to large populations of increasingly affluent young consumers, plus the financial services, infrastructure and technology they use.
“Emerging markets trusts now offer exposure to large populations of increasingly affluent young consumers, plus the financial services, infrastructure and technology they use.”
Coming down from the clouds of macroeconomic generalities, consider the sparkling performance of the top-performing emerging markets trust with total assets above £100m over the last year. Barings Emerging EMEA Opportunities (stock market ticker: BEMO) has seen its share price soar 44% over that period, following 54% over five years and 143% over the decade.
BEMO has benefited from bad news elsewhere because its biggest country allocation, equal to about 27% of assets, is to major gold producer South Africa. Bullion often shines when dark clouds gather over the global economy, with violent conflicts in the Middle East and Ukraine adding to its ‘safe haven’ attractions. But BEMO’s global diversification is demonstrated by its second and third-biggest geographical asset allocations to Saudi Arabia and the United Arab Emirates, equal to 24% and 12% of assets respectively.
Among other big emerging markets trusts, Fidelity Emerging Markets (FEML) with total assets of £654m, Templeton Emerging Markets (TEM), with more than £2.3 billion, and JPMorgan Global Emerging Markets Income (JEMI) with £500m, are not far behind.
It’s only fair to add that smaller trusts in this sector have also delivered sparkling returns. For example, Ashoka WhiteOak Emerging Markets (AWEM) with total assets of £55m has seen its share price rise by 34% over the last year, although it lacks five and ten-year numbers, having launched in 2023.
Taking a longer view, I cannot resist mentioning that emerging markets delivered your humble correspondent’s very first ten-bagger, or share whose price soared by ten times or more. This long-term investor paid 63p in June, 1996, for shares in what was then called Fleming Indian and now trades as JPMorgan Indian (JII) at £10.10 per share.
But even the world’s biggest democracy cannot offer the diversification of a global emerging markets trust. The same could be said about the world’s second-biggest economy and most populous country, China, another emerging market where I have invested via various trusts over the decades but currently shun because of allegations about human rights abuses.
Most recently, I have invested in another trust called BlackRock Frontiers (BRFI), largely for its dividend income of 4.5%, which has risen by an annual average of 4.7% over the last five years. Even so, its relatively modest total return over the last year of only 21% (“only”!) places it in the bottom half of its sector.
“Investment trusts’ closed-end structure makes them the ideal way to gain exposure to emerging markets, where the potential for higher rewards is accompanied by higher risks of share price volatility.”
More positively, investment trusts’ closed-end structure makes them the ideal way to gain exposure to emerging markets, where the potential for higher rewards is accompanied by higher risks of share price volatility. No wonder City wags sometimes liken global emerging markets trusts to a well-known beer, saying they can refresh the parts of your portfolio that other pooled funds cannot reach.
Data as at 30 September 2025. Ian Cowie is a shareholder in BlackRock Frontiers (BRFI) and JPMorgan Indian (JII) as part of a globally diversified portfolio of investment trusts and other shares.
