Square Mile: Funds to watch in the emerging markets sector

By Ibrahim Ishmail, investment research analyst, Square Mile Investment Consulting & Research

The IA Global Emerging Markets sector is one that is both dynamic and diverse. It primarily consists of funds that invest mainly in equities from emerging economies across Asia, Africa, Latin America, the Middle East, as well as parts of Eastern Europe. Emerging economies are known to have high growth whilst simultaneously can be highly volatile due to geopolitical risks for example or sensitivity to global macroeconomic changes.

The Investment Association (IA) currently has over 180 emerging market funds of which around 20% are passive index trackers. Active management can be attractive in emerging markets, as it offers the potential to identify mispriced opportunities. The higher volatility in these markets can also lead to higher returns; for example, emerging market equities have at times outperformed developed markets during periods of strong economic growth and rising commodity prices.

See also: China and India funds ‘mirror opposites’ in August

Macro backdrop

Emerging economies are known for their high rate of growth and technological advancements, offering investors exposure to markets with a strong long-term potential. Additionally, favourable demographics, including a growing young and skilled population, such as in India and an expanding middle class, contribute to rising productivity and consumer spending. Governments across the region have prioritised policies that attract investment across multiple sectors, to promote innovation and development.

For example, technological growth is evident in Taiwan’s semiconductor industry (eg TSMC), China’s dominance in electric vehicles and renewable energy, increasing innovation in patent activity and technological advancements, and greater efficiency in mining operations across Latin America, Africa, and Asia to meet the rising global demand for critical minerals.

It is important to highlight that the performance of emerging market assets is also impacted by the global macroeconomic environment. The global interest rate cycle for example is a driver where higher US rates tend to strengthen the dollar which can increase the cost of debt for emerging economies. Geopolitical risks add another level of volatility, from trade tensions to armed conflicts impacting commodity and energy markets. On the other hand, nearshoring themes in the US for example are creating opportunities in countries such as Mexico as companies diversify their supply chains and manufacturing away from China. At the same time, the accelerating global energy transition is projected to increase demand for critical minerals like copper and lithium, providing an extra tailwind.

Finally, environmental, social, and Governance (ESG) considerations are becoming increasingly central to investors’ decision making process, with more funds integrating ESG factors into their investment strategy. Moreover, the focus on shareholder-friendly policies has been increasing, as seen in initiatives by a number of Chinese management teams and South Korea’s Value-up program.

See also: Transitioning to sustainability: The crucial role of emerging markets

How’s the sector performed in recent years?

Emerging markets have experienced high volatility between 2022 and 2025 shaped by macro shocks, armed conflicts, policy changes, as well as investor sentiment. In 2022, for example,  the Russia-Ukraine war, rising inflation and increasing US-China tensions were a heavy headwind for emerging markets. However, towards the end of the year, markets bounced on hopes of post-Covid economic re-opening in China. In 2023, many emerging market equities initially rebounded, supported by optimism around China’s reopening and relatively low valuations, whilst concerns over recessions in developed markets encouraged capital flows into EM. However, sentiment weakened as the year progressed due to rising concerns over a global recession as well as the continued US-China tensions.

In 2024, initially, emerging markets underperformed the US, but sentiment improved as the year progressed especially following the stimulus measures announced by China in September that year, which boosted confidence although investor caution continued due to geopolitical uncertainties and the evolving global political and economic environment. In 2025 thus far, it has been a tale of different quarters where the start of the year saw rising fears driven by the US tariff threats on imported goods. However, as we entered the second half of the year, performance across emerging markets has been impressive supported by renewed confidence in China and emerging markets more broadly.

Funds to watch: 3-year performance

Artemis SmartGARP Global Emerging Markets Equity: One of the top-performing funds over the period, this strategy combines systematic and fundamental analysis with experienced manager decisions. It evaluates not only a company’s potential for returns but also the sector and country in which it operates. The SmartGARP quantitative screen helps the team identify the most attractively valued stocks without excluding sectors or countries based on short-term outlooks. Instead, it highlights the current opportunity set, allowing the managers to spend their time interpreting the insights rather than second-guessing the model. The result is a contrarian, high–active-share strategy that typically exhibits a bias toward value stocks.

Redwheel Next Generation Emerging Markets Equity: Managed by James Johnstone, this fund follows the same investment process honed over 20 years in the team’s Global Emerging Markets fund. Supported by a well-resourced team, the strategy combines macro and thematic research with rigorous bottom-up analysis to identify the best ideas for its all-cap portfolio. Top-down insights help build conviction in these bottom-up selections, contributing to the fund’s strong performance since its launch. The strategy also offers long-term investors meaningful diversification benefits. It focuses on markets that are typically under-researched, under-represented in current indices, and currently under-owned by investors. This approach provides differentiated exposure compared to more mainstream emerging markets funds, appealing to investors looking to add a niche, high-conviction element to their core large-cap EM allocation.

Lazard Emerging Markets: Managed by James Donald, this fund distinguishes itself from traditional emerging market strategies through a higher quality value approach. The fund focuses on relative value opportunities, investing in companies that are attractively priced relative to the strength of their financial profitability. While this strategy tends to perform well when value is in favour, it may underperform during periods when growth stocks are rallying or when investor attention shifts toward thematic trends rather than company fundamentals.

Funds to watch: Assets under management

Vanguard Emerging Markets Stock Index: Vanguard is one of the world’s largest managers of passive investment strategies. The fund invests in physical securities and employs an optimization approach. Unlike full replication, where every security in the index is held, the optimisation process involves selecting a representative subset of securities to closely match the index’s risk and return characteristics while maintaining cost efficiency. The fund tracks the MSCI Emerging Markets Index which is a market-capitalization-weighted index that measures the performance of large and mid-cap stocks across over 20 countries defined as emerging markets. It excludes small-cap stocks and companies listed in frontier markets. The largest country represented in the index is China, comprising 20% to 30% of the index. The index also has large allocations to stocks listed in India, Taiwan, and South Korea.

iShares Emerging Markets Equity Index: Part of BlackRock, iShares is also one of the world’s largest managers of passive strategies, offering both exchange-traded funds (ETFs) and open-ended passive funds. The equity team operates across a global network of offices, enabling portfolio managers to access local market knowledge and collaborate in similar time zones. This particular fund aims to deliver returns by closely tracking the performance of the FTSE Emerging Index, the FTSE Emerging Index is a market-capitalization-weighted index that measures the performance of large and mid-cap stocks in emerging markets, excluding small-cap stocks. The largest country represented in the index is China, comprising broadly 25% to 35% of the index. The index also has notable allocations to companies listed in India and Taiwan.

Royal London Emerging Markets Equity Tilt: Royal London Asset Management is part of the Royal London Group, the UK’s largest mutual pension and investment provider. This particular fund aims to deliver returns with the MSCI Emerging Markets ex China Index as its benchmark; the Index is a market-capitalization-weighted index that measures the performance of large and mid-cap stocks in emerging markets, excluding small-cap stocks as well as stocks listed in China. China represents broadly 25% to 35% of the main Emerging Market Index which, so there maybe differences in the performance of this fund and one which just tracks the MSCI Emerging Markets Index. The fund does look to have a carbon intensity which is at least 30% less than the fund’s benchmark.

See also: India’s economic landscape: A long-term investment opportunity

Funds to watch: Newcomers

Pacific North Of South Global Emerging Markets Equity: This actively managed, value-focused strategy is led by seasoned portfolio managers Kamil Dimmich and Matthew Linsey. Their process combines top-down macroeconomic analysis and bottom-up company research to identify undervalued emerging market companies across all market caps.

Fidelity Responsible Emerging Markets: Led by Amit Goel, who became the lead manager in March 2023, this sustainable emerging markets equity strategy draws on his extensive experience at Fidelity, where he has worked since 2006. Previously co-portfolio manager for Fidelity’s broader Emerging Markets strategies, and now heading this fund with a focus on responsible investing, the portfolio is relatively concentrated allowing for conviction-driven stock selection and ESG integration. Following a ‘quality’ investing style, the fund favours companies with strong management teams and robust, responsible ESG practices.

Federated Hermes Global Emerging Markets ex-China Equity: This actively managed strategy is led by Kunjal Gala, Head of Global Emerging Markets at Federated Hermes. The fund takes a long-term, active approach, maintaining a concentrated, high active share portfolio across all market capitalisations. It aims to capitalise on opportunities in emerging markets outside China by investing in quality companies trading at attractive valuations.