Investing in emerging markets – three fund picks

Important information - the value of investments and the income from them can go down as well as up, so you may get back less than you invest.

Emerging markets were something of a surprise winner in 2025. At the beginning of the year, it seemed developing economies would be crippled by US tariffs, given their reliance on exports to developed nations. 

The levies proved less damaging than feared and the real story was the fall in the US dollar. A weaker greenback helps EM because:

-    it improves the spending power of Asian consumers 
-    reduces imported inflation into EM economies
-    lessens the burden of dollar-denominated debt, which many EM countries hold
-    boosts the price of commodities, a key export for many emerging markets 

However, EM has been less impressive in recent years. The table below compares its performance to the UK stock market and a global index. Performance was particularly weak in 2021, despite strong returns in most markets during the post-Covid recovery. China was a particular drag that year, due to concerns about heavily indebted companies and consumers.

Source: Refinitiv, from 1.1.20 to 31.12.24, based on MSCI indices and the FTSE 100.

Past performance is not a reliable indicator of future returns

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Reasons for optimism

The long-term story is that the younger economies and populations of emerging markets translate to faster growing economic growth and, potentially, better market returns. This is far from certain, but it is enticing for investors who need long-term growth and are comfortable with additional risk.

In the past, investors have worried about emerging market debts. But the situation today is very different from the 2010s. Today, debts are as big a problem in the developed world.

Reasons for caution 

Emerging markets had a strong run in the 2000s but have otherwise been a disappointment to investors for much of the century, especially in contrast to a thriving US market. There have been pockets of strong performance. India has been a standout performer over the past decade, though performance has faltered in 2025. Country specific funds offer British investors to single markets. Use our Investment Finder to look these up.

What is changing now?

As mentioned above, tariffs have been a headwind to emerging markets while a falling dollar has provided support. 

EM has also benefited from a rotation of money out of the US, where investors are concerned about valuations. 

And as we pointed out earlier this year fears about tariffs may have been overplayed. The US, for example, accounts for just 3% of the revenues of companies included in the MSCI China index compared to 85% coming from mainland China itself. 

The Fidelity asset management outlook for 2026, published earlier this month, was positive on emerging markets. It suggested: ‘Any depreciation of the dollar should be a boon to emerging markets. EM assets are one of our central convictions for 2026. 

‘Equities in places like South Korea and South Africa are re-rating higher, with improving fundamentals and attractive valuations relative to the rest of the world. China looks compelling for 2026 too with its ongoing policy support creating specific opportunities.’

Investors on our platform already appear wise to China’s appeal. Fidelity China Special Situations was the second most bought investment trust of 2025.

• Read: Top 10 best-selling investment trusts of 2025

How cheap are emerging markets?

Your entry point is key to investment success - buy when valuations are low and higher returns should eventually follow, although this is never certain.

The basic measure is to compare prices with earnings. Emerging markets are on a forward price-to-earnings ratio of 13, far cheaper than 23 for the US, according to analysis by Schroders (30 November). The UK, it should be noted, is also on a P/E of 13. 

• What is the price-to-earnings ratio and how do you calculate it

What is the right amount to hold in emerging markets?

In the MSCI All Country World Index, a reflection of world stock market sizes, emerging markets make up only 10%. Even an allocation that high may be considered higher risk and only for high-growth investors. For specific help, talk to a financial adviser.

Which emerging markets funds make the Select 50?

Our list of favourite funds includes three general emerging markets funds.

• Select 50: our favourite funds - selected by experts

Lazard Emerging Markets

Ongoing charge: 1.04%

This is an actively managed fund so carries higher fees than a tracker or passive fund. It invests in companies across emerging markets, including China, India, Brazil and South Africa. The team members are 'value' investors, quite contrarian and often buy companies with depressed share prices; they have been investing on this basis for decades. The manager of this fund is ‘exceptionally experienced’, our Select 50 researchers say. 

• More on Lazard Emerging Markets

Fidelity Responsible Emerging Markets Equity

Ongoing charge: 0.95%

The fund follows a 'quality' style, favouring companies that the manager believes have attractive characteristics, such as strong management teams and responsible management of environmental, social and governance (ESG) issues. The Lazard fund, in contrast, focuses on value companies. The manager is an experienced emerging markets investor and is backed by one of the industry's largest emerging market equity teams.  It is 77% invested in Asia with 10% in Latin America and just under 10% in Africa.

• More on Fidelity Responsible Emerging Markets Equity

iShares Core MSCI Emerging Markets ETF

Ongoing charge: 0.18%

This is a passive or tracker fund, hence the lower cost. BlackRock, which runs iShares, has good experience in index tracking and the fund charge is well priced. Around 80% of the fund is invested in Asia.

• More on iShares Core MSCI Emerging Markets ETF