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Andrew Daniels, Morningstar
The emerging market equities category is diverse in composition, containing a variety of economic and political conditions and composed of a myriad companies engaged in a wide range of activities. Perhaps the most significant feature that the so-called Bric(s) nations – Brazil, Russia, India and China (and later, South Africa) – have in common is their inclusion in a snappy-sounding acronym coined by Goldman Sachs in 2001.
Yet, investors tend to view them together for their potential, whether as growing consumer markets, manufacturing bases, the breeding ground of new industries or the source of commodity revenues.
They can offer high returns when economic confidence and activity is buoyant, but that optimism can sour quickly. Investors need to accept price volatility, and adjust to illiquid markets and opaque corporate practices.
The MSCI Emerging Markets index has earned a cumulative return of 330% since 1999, outperforming the S&P 500 (228%) and the MSCI World index (188%), according to FE Analytics data.
However, its annualised volatility is also much higher during the past two decades, at 21.43% compared with 17.37% for the S&P 500 and 16.74% for the MSCI World index.
Emerging markets took a sharp hit in 2018 in reaction to the US Federal Reserve raising interest rates, recovered quickly in the first four months of this year when the Fed chairman changed his mind, and have subsequently struggled as investors grapple with the escalating Sino-US trade dispute and the possibility of a global recession.
In this topsy-turvy environment, FSA asked Andrew Daniels, senior analyst at Morningstar, to compare two emerging market equity products which the fund research firm knows well and rates highly: the Fidelity Emerging Markets Fund and the Stewart Investors Global Emerging Markets Leaders Fund.