Get long-term growth with Fidelity Emerging Markets

Emerging market funds fit the bill because they offer the potential for strong growth and can help to diversify portfolios. These regions' predominantly young populations are getting richer, and economies that used to be dominated by commodities and export manufacturing are diversifying.

One way to tap into them is Fidelity Emerging Markets Fund (GB00B9SMK778), managed by Nick Price. The fund aims for long-term growth by investing in companies with strong market positions and characteristics that give them a competitive advantage in their industries. These types of companies provide the fund with attractive earnings through both the ups and downs of the economic cycle.

Mr Price also looks for businesses that deliver superior returns on their assets and have well-capitalised balance sheets, because such companies are usually better placed to fund internal growth without diluting existing shareholder earnings by issuing new shares. Mr Price’s background as an accountant helps him to inspect companies’ balance sheets and select better quality companies. He is also an experienced fund manager – he has run this fund since 2010 and covered emerging markets since 2005.

Mr Price is supported by a team of analysts with over 17 years experience on average. He gets ideas on what stocks to pick from Fidelity’s regional emerging market portfolios focused on Asia, the Middle East and Africa, and Latin America, which are researched by Fidelity's emerging market analysts from around the world. They provide recommendations to the regional managers of Fidelity's emerging market portfolios. 

Fidelity Emerging Markets Fund's largest sector exposure is financials, which accounted for 36.7 of assets at the end of April, followed by consumer discretionary, which accounted for 22.3 per cent. The fund's largest holdings include Naspers (NPN:JNB), a multinational internet and media group headquartered in South Africa, and pan-Asian life insurance group AIA (HKG:1299).

Around 89 per cent of the fund is invested in large-caps, which helps it to deliver a more defensive performance than some other emerging markets funds.

And this approach seems to be working: over five years the fund has made a total return of 54 per cent, ahead of MSCI Emerging Markets index and the Investment Association (IA) Global Emerging Markets sector average.

Although emerging market funds have the potential to deliver strong growth, they are also higher risk and can be more volatile as a result of exposure to less stable financial infrastructure and weaker governance standards. And this particular fund has around a fifth of its assets in China and its holdings listed there could experience price fluctuations due to ongoing US-China trade tensions.

However, the stocks the fund holds are very well researched, which helps to mitigate potential risk. And the fund doesn't only invest in China – its combined exposure to Russia and India adds up to more, and the Indian holdings could benefit from positive sentiment following the result of the recent election there. In any case, if you have a long-term investment horizon then a short-term issue like US-China trade tensions should not be a problem for your long-term returns. 

So if you are open to some risk and want growth over the long term, Fidelity Emerging Markets is a good fund to hold as part of a diversified portfolio. Buy. ZB

Fidelity Emerging Markets (GB00B9SMK778)

Source: Morningstar as at 05 June 2019, *Fidelity

Performance

Source: FE Analytics as at 31 May 2019

Top 10 holdings (%)

Source: Fidelity as at 30 April 2019

Geographic breakdown (%)

Source: Fidelity as at 30 April 2019