Fidelity Emerging Markets Limited: Kepler investment research June 2023 (LON:FEML)

Fidelity Emerging Markets Limited (LON:FEML) has announced new research by Kepler Trust Intelligence.


Fidelity Emerging Markets Limited (FEML) hands the managers a full set of tools with which to create a highly active investment proposition with high alpha-generating potential. Not only are the managers free to invest anywhere on and off-benchmark, across sector, market cap and geography and into the frontier markets, but they also make use of derivatives in multiple ways, most importantly to take up short positions in companies.

FEML’s strategy mirrors that of the open-ended Fidelity FAST Emerging Markets fund, which has been managed by Nick Price since launch in 2011. Long-term returns have been well ahead of the benchmark. Nick was joined by co-manager Chris Tennant in 2019, meaning the pair have 11 and four years’ experience on the strategy respectively, and they took over FEML when the management contract was awarded to Fidelity in October 2021.

Many funds claim to be active, but the options available to FEML really make it stand out. In the long book, the managers use Fidelity’s extensive research team to identify high-quality companies with good growth prospects and attractive valuations. Nick and Chris also short the weakest companies, whether that be an idiosyncratic short or a pair trade. They can take geared positions with derivatives too, as well as buying or selling options to generate extra returns.

Emerging markets were out of favour in 2022 – and equity markets in general saw poor returns. FEML also had a bad year. This has led to a wide Discount opening up, relative to the trust’s history and relative to the peer group, while the board has committed to a conditional tender offer in five years and remains active in looking for ways to close it. (We note that technically, FEML is a Guernsey-registered investment company, but we will use the term trust for simplicity’s sake.)

Analyst’s View

Emerging markets have underperformed the US, and therefore global developed markets, for over a decade, with only short periods of outperformance. US markets have become extremely expensive as a result, with the US dollar also looking expensive. Yet after China’s reopening in Q4 2022, there are signs that market leadership has shifted. Emerging markets have outperformed and the dollar has weakened. With emerging markets looking cheap, this could be a good time to buy. An additional factor favouring FEML is that the impact of higher rates and therefore the higher cost of debt should increase the pressure on weaker companies. FEML can take advantage by shorting these stocks, and to us it looks like this could be a conducive environment to this strategy, and one which makes FEML less dependent on market direction for returns.

In our view, FEML is a premium product which, due to a combination of macro circumstances and recent underperformance, is available on a highly attractive discount. A rising dollar and high risk aversion meant that 2022 was a poor year for emerging markets, while the Russian invasion of Ukraine and a shift from growth to value worked against FEML. The discount of 14.3% at the time of writing looks highly attractive to us given the managers’ strong track record. This is particularly so given the tender offer and continuation vote scheduled in years to come. In the past, the strategy has been an alpha-generation machine, with some inevitable variability as to when this is generated.

Fidelity Emerging Markets is an investment trust that aims to achieve long-term capital growth from an actively managed portfolio made up primarily of securities and financial instruments providing exposure to emerging markets companies, both listed and unlisted.

Click to view all articles for the EPIC:
Or click to view the full company profile:
Share on facebook
Share on twitter
Share on linkedin
Fidelity International

More articles like this

Fidelity Emerging Markets

Foreign appetite for EM expected to remain strong

Foreign appetite for emerging markets including Malaysia is expected to remain strong for the remainder of the year as investors are looking to diversify funds in light of the widening risk-reward ratio on Wall Street as another Federal

Fidelity International

Fidelity Emerging Markets Limited August factsheet (LON:FEML)

Fidelity Emerging Markets Limited (LON:FEML) published its monthly factsheet for August 2023. Portfolio Manager Commentary Emerging markets declined in August amid global risk-off sentiment as benign data from the US economy raised concerns that the US Fed will

Fidelity Emerging Markets

What are the growth drivers in EM going to be?

More experienced colleagues are prone to be sceptical about a lot of things. One thing we have been asked on a number of occasions is where the growth is going to come from now China is slowing. That

Fidelity Emerging Markets

Where are the bright spots in emerging markets?

Emerging markets equities declined in August, dragged down by disappointing Chinese economic data and strength in the US dollar. Since then, Beijing has introduced further policy support and data points have marginally improved. While China’s growth outlook remains

Fidelity Emerging Markets

Why EM capital markets are likely to rise

Developed market equities have long dominated global equity markets, but that’s set to change in the coming decades. Kevin Daly, co-head of CEEMEA Economics in Goldman Sachs Research, explains why EM capital markets are likely to rise significantly

Fidelity Emerging Markets

Biden bets on emerging markets

U.S. President Joe Biden arrives at this weekend’s Group of 20 (G20) meeting in India with an offer for the “Global South”: whatever happens to China’s economy, the United States can help fund your development. Armed with cash

Fidelity Emerging Markets

Emerging markets brighter outlook

The outlook for emerging markets is brighter than it is for developed markets when it comes to growth, inflation and public debt, Jean-Charles (JC) Sambor, Head of Emerging Market Debt, tells Daniel Morris, Chief Market Strategist, on our

Fidelity Emerging Markets

Is now the right time to invest in Emerging Markets?

Many investors are wondering if it’s the right time to add exposure to emerging markets. With ongoing market uncertainty and the possibility of a recession, investors may be wary to add exposure to riskier segments of the market.

Fidelity Emerging Markets

Emerging markets to withstand China’s economic woes

For the past three decades, China’s economy has been a dominant factor in emerging markets for economic and corporate growth. Goldman Sachs Group Inc. strategists say that’s now changing. Calling it an “ongoing long-term divorce,” the US bank

Fidelity Emerging Markets

Investors eye new opportunities in emerging markets

A relatively robust and favourable macro outlook for countries in Asia and Latin America bodes well for investment opportunities across emerging markets (EM) for the rest of 2023. In particular, EM bonds and currencies are appealing, according to

Fidelity Emerging Markets

Fed decoupling boosts emerging market stocks

Investors are eyeing gains in emerging markets stocks and a cooling of their currencies amid an unprecedented global decoupling in the direction of interest rates. While the U.S. Federal Reserve has delivered aggressive interest rate hikes since March 2022, major

Fidelity Emerging Markets

Billionaire Mark Mobius bullish on emerging markets

Billionaire investor Mark Mobius confirmed he has no US investments, saying he is bullish on emerging markets in Asia. “I’m all international and emerging markets in particular,” the Mobius Capital Partners founder said in an interview with CNBC on Thursday.

Fidelity Emerging Markets

India set to be the poster child of emerging market growth

In a world rife with macroeconomic uncertainty, emerging markets have come under pressure. Yet one country is bucking the trend. India’s prospects look particularly strong, with the country’s economy hovering close to its pre-pandemic path despite a challenging

Fidelity Emerging Markets

India more attractive than other emerging markets

Capital Group, an American financial services company, has said that India appears to be more attractive than other emerging market in the wake of the reforms initiated by the Modi government and a boost to domestic manufacturing, offering

Fidelity Emerging Markets

Emerging markets outlook 2023

The first half of 2023 has brought a bumpy road of positive performance to emerging market (EM) equities. The year began with a bang, as global allocators bought the headlines around China’s reopening but then slowed down as

Fidelity Emerging Markets

Emerging markets stocks set to snap six-day losing streak

Emerging market stocks looked set to snap a six-day losing streak on Tuesday, after China reassured investors of its growth prospects in the second quarter, while Russia’s rouble steadied following a volatile session due to geopolitical tensions. The

No more posts to show