Exploit Fidelity Emerging Markets' steady long-term growth

But emerging markets are still cheaper than at times in their own history and relative to developed markets. And the long-term reasons for investing in them remain intact - regardless of market movements this year. These include young population, reforms aimed at unlocking the potential of their domestic economies, and growing wealth and consumer spending.

"The more stable outlook for the US dollar has handed emerging market business and sovereigns some breathing space," says Ben Gutteridge, head of fund research at wealth manager Brewin Dolphin. "Given this backdrop, we have raised our emerging market allocation after an extended period of a below benchmark position."

And he suggests fulfilling the allocation with Fidelity Emerging Markets Fund (GB00B9SMK778), which we also recently added to the IC Top 100 Funds.

"The primary focus of this strategy is on new-economy stocks, whether it is consumer- or internet-related plays - the long-term winners in emerging markets," says Mr Gutteridge. "Material and commodity names may have their day in the sun, but the cyclicality and inefficient manner in which these businesses are run should deter the more thoughtful, long-term investor, such as Nick Price."

Fidelity Emerging Markets' manager, Mr Price, favours high-quality, attractively priced companies that are capable of delivering sustainable returns. He also likes companies able to deliver superior returns on their assets and that have well-capitalised balance sheets, because he thinks they are usually more able to fund internal growth without diluting existing shareholder earnings through issuing new shares.

This fund has delivered strong long-term total returns and is among the top-quartile of performers in the Investment Association (IA) Global Emerging Markets sector over three and five years, over which periods it has also beaten MSCI Emerging Markets Index.

Over one year, the fund is behind its benchmark and the IA Global Emerging Markets sector average, albeit with a double-digit positive return.

However, the reason Fidelity Emerging Markets has lagged behind its peers over one year is because Mr Price favours high-quality companies and this year's emerging markets rally has been driven by lower-quality value companies, which have been helped by the increase in oil prices. The fund has no holdings in energy companies, for example, and little exposure to materials.

Despite strong rises overall, emerging market valuations remain at reasonable levels, and this fund doesn't have a heavy concentration in the types of companies that have done well over the short term.

Latin America also only accounts for about 12 per cent of its assets, and the fund is well diversified across various regions within emerging markets.

So if you have a long-term investment horizon over which time you want to benefit from the best companies in emerging markets, then Fidelity Emerging Markets Fund still looks like a good way to do it - even if the value rally doesn't last. Buy.

Source: Morningstar, *Fidelity.

Performance

Source: Morningstar as at 31 August 2016

Top 10 holdings as at 31 July 2016 (%)

Geographic breakdown (%)

IC TIP RATING

Tip style: GROWTH

Risk rating: HIGH

Timescale: LONG TERM