Emerging markets: an active approach pays

GAINING ACCESS TO SOME OF THE WORLD’S FASTEST GROWING ECONOMIES SPELLS “OPPORTUNITY” FOR INVESTORS. BUT THE REAL REWARDS CAN COME WITH AN ACTIVE MANAGEMENT APPROACH. FIDELITY WRITES.

When it comes to growth potential, it’s hard to go past emerging markets. These are the developing economies of India, Brazil and China together with smaller nations like Thailand and the Philippines – all of which are experiencing rapid growth. Already, emerging market economies account for over half of global growth. By 2022, that figure is expected to rise to 62%. This growth makes emerging markets an exciting asset class for investors with a long-term view. There are other benefits, too. Emerging markets also bring valuable diversity to a portfolio.

Covid-19 makes active management a must

While the nations that make up emerging markets each have their own characteristics, there are common threads such as rising household incomes and a burgeoning middle class, and government regulation that’s helping to bring stability to the journey of development. However, amid a global pandemic, it’s becoming clear that some emerging market economies will head out of the Covid-19 crisis in better shape than others. North Asia, led by China, has rebounded sharply compared with South Asia. In Latin America, a number of economies are struggling to contain the coronavirus, and their governments don’t always have the resources needed to compensate for the economic impact of the pandemic. This difference in regional responses highlights the importance of an active management strategy. “The case for emerging markets remains strong; however it is important for investors to be selective,” says Alex Duffy, portfolio manager of the Fidelity Global Emerging Markets Fund.

Identifying where the opportunities lie

Active management gives investors key advantages. Chief among them are the insights of a skilled investment team able to identify those emerging economies best-placed to chart a course through Covid-19. The advantages of active management apply to individual stock selection, too. Emerging markets are home to some of the world’s fastest growing and most innovative companies, and professional investment teams have the resources to analyse the impacts of Covid-19 on industry sectors and individual companies – and select from the best. “The pandemic has highlighted the value of investing in high-quality names,” says Duffy. “That means looking for companies with solid balance sheets that enable them to chart a course through volatility and emerge stronger, while always aiming to grow shareholder value over time.” An active management approach can add a further layer of diversification as investment managers are able to select from an array of options that extend beyond the market index.

The best of both worlds

The bottom line is that emerging markets offer an attractive combination of growth potential and diversification, but this is an asset class where expert insights offer real value. The good news is that investors can now easily access Fidelity’s 20 years of experience in emerging markets via a simple trade on the ASX. Fidelity’s Global Emerging Markets Fund (Managed Fund) (ASX:FEMX) is an active ETF listed on the ASX, providing investors instant diversification and access to 30-50 actively managed shares in one trade.