Fidelity Emerging Markets Limited (LON:FEML) has continued to stand out in the emerging markets space, according to the latest research note from Kepler Partners, with the trust delivering a particularly strong first half of 2026 and maintaining a differentiated approach that gives the managers more ways to generate returns than many peers.
The note highlights that emerging market equities have had a strong year so far, but FEML has done even better. By the end of June, the trust had outperformed the MSCI EM Index by nearly 18 percentage points, helped by long positions in technology hardware names such as Taiwan’s Elite Material and SK Square, the holding company for Korean memory producer SK Hynix. The managers have also increased exposure to technology more broadly, including Taiwanese names such as Lotes, which makes CPU sockets used in AI servers.
One of the key attractions of FEML is its flexible investment toolkit. The managers can use derivatives to increase exposure to companies where they have high conviction, and they can also take short positions in businesses they believe face deteriorating fundamentals. The note says this gives the trust a distinctive edge, particularly in a market where opportunities can be unevenly spread across countries, sectors and company sizes.
In portfolio terms, the trust remains overweight materials, with the managers constructive on copper and gold. They believe copper demand should be supported by structural themes such as energy transition and the buildout of AI infrastructure, while smaller gold miners continue to offer attractive free cash flow potential even at conservative gold prices. The managers have taken profits in some gold holdings after strong performance, but the sector remains an important part of the portfolio.
Brazil is another major overweight. The note explains that Nick Price and Chris Tennant see Brazilian equities as well placed to benefit if interest rates fall, and they also believe the presidential election in October could improve market sentiment. That has led them to add to Brazilian positions, including Itaúsa, the holding company for Itaú Unibanco. In contrast, India remains underweight, with the managers pointing to high valuations and risks including rising competition in financials and the threat of AI to some IT services businesses.
The source material also shows how active the managers have been in adjusting the portfolio. They have trimmed some materials positions, recycled capital into names such as Aris Mining and First Quantum Minerals, and reduced exposure to certain gold and copper miners that could be affected by diesel shortages following conflict in the Middle East. They have also added selective short positions in precious and industrial metal miners where they see weak operational momentum or lower-quality assets.
Technology has been another major theme. The trust holds high-conviction positions in TSMC and Elite Materials, while also increasing exposure to names further down the supply chain, including Wiwynn. The managers have remained constructive on Korean memory names SK Hynix and Samsung Electronics, and have used market volatility to add exposure to memory. At the same time, they exited Trip.com, seeing the travel agent as potentially threatened by agentic AI.
The note also points to selective moves in China, where the managers have introduced positions in Advanced Micro-Fabrication Equipment and Sany Heavy International. These additions reflect a view that China’s push for greater self-reliance could support domestic semiconductor and industrial supply chains.
Highlights from the latest research note:
- FEML delivered NAV and share price total returns of 43.0% and 43.5% respectively year to date to 30 June 2026.
- The trust outperformed the MSCI EM Index by nearly 18 percentage points over the period.
- Five-year NAV and share price total returns reached 79.1% and 84.9%, versus 47.3% for the MSCI EM Index.
- The discount stood at 7.5% at the end of June, below the AIC Global Emerging Markets sector simple average of 6.7%.
- The latest annual report showed an ongoing charges ratio of 0.83%, below the sector average of around 1.3%.
Performance has been supported by the trust’s willingness to look beyond the obvious. The note says FEML invests across large, mid and smaller companies, and can also hold off-benchmark names, including frontier market exposure such as TBC Bank, which operates in Georgia and Uzbekistan but is listed in the UK. That broader opportunity set, combined with the ability to use shorts and gearing, gives the managers a wide range of tools to express their views.
Looking ahead, the research note remains constructive on the long-term case for emerging markets. It argues that valuations remain attractive relative to developed markets, while long-term growth drivers such as AI, electrification and demand for metals continue to support the investment backdrop. Although geopolitical tensions in the Middle East and higher oil prices could weigh on sentiment, the note says FEML’s current discount may offer an attractive entry point for investors seeking a differentiated emerging markets strategy.
The trust’s board has also been active on shareholder returns, with buybacks and a tender offer framework in place. Meanwhile, the managers continue to emphasise active engagement, strong research support from Fidelity’s emerging markets team, and a disciplined approach to stock selection. For investors looking for a highly active emerging markets trust with a broad toolkit, FEML appears to offer a compelling combination of flexibility, conviction and valuation support.
