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Fidelity Emerging Markets posts first results under new manager

Fidelity Closed-End Funds Review 2

Fidelity Emerging Markets posts first results under new manager – Fidelity Emerging Markets (FEML) has posted its annual results for the year to 30 June 2021, and its inaugural results under the management of Fidelity, having previously been run by Genesis Investment Management.

During the twelve months under review, the NAV increased by 23.1% in sterling total return terms to £10.13 per participating preference share. Meanwhile its share price rose by 28% during the same period, which compares to an increase of 26.4% in the benchmark, the MSCI Emerging Markets Total Return Index

In response to shareholder consultation during 2018 on the level of the share price discount to NAV, the board announced that a potential tender offer of up to 25% of shares would be implemented in 2021, if the company’s NAV total return over the five years ending 30 June 2021 did not exceed its benchmark Index.

A resolution to declare a final dividend of 18 cents per share will be proposed at the AGM on Wednesday, 8 December 2021. Subject to shareholder approval, the final dividend will be paid on 17 December 2021 to shareholders on the Register of Members on 12 November 2021. The ex-dividend date is 11 November 2021.

As FEML did not produce the necessary performance to outperform its benchmark Index, the board announced that a tender offer for up to 25% of shares in issue (excluding any shares held in treasury) will be implemented subject to shareholder approval. The tender price was set at a 2% discount to the prevailing NAV per share. The tender offer was subsequently approved by shareholders at the EGM held on 1 October 2021. Following completion on 22 October 2021, a total of 30,366,688 Participating Preference Shares (25% of the company’s issued share capital) were repurchased by the company for cancellation.

Statement from the chair:

We have seen moments of market turbulence caused by China anti-trust laws and regulation and more recently by beleaguered property developer China Evergrande. The Board is confident that Fidelity, as an experienced emerging markets manager, aided by the insights of its teams based in China and throughout the Asia region will be able to navigate through volatile markets and deliver attractive returns to shareholders.

China is likely to remain in the spotlight presenting considerable near term risks, however, the new manager’s exposure to the most directly impacted areas will be limited.

China Evergrande has amassed significant debts although they have so far been able to stave off collapse and recently averted a costly default with a last-minute bond coupon payment. The impact on the global financial system, should they default, depends to a considerable extent on the response of the Chinese government. Conditions remain precarious across the sector and it remains to be seen how far the Chinese government will be willing to step in to provide stability. Whether they do so or not, there will be significantly less residential construction in China which will result in a negative impact on Chinese GDP.

Beyond China the pandemic has resulted in unprecedented monetary policy; although rates are starting to rise in some emerging markets, Fidelity believes that the developed world will continue with low interest rates.

Emerging markets may have recovered somewhat, but overall, they remain on a wide discount compared to developed markets. This provides good scope to add to high quality stock positions on a selective basis.

Emerging markets have evolved, but commodities continue to play a key role. Today supply constraints are combined with huge stimulus and a transition to a cleaner, greener economy, driving demand up and lending support to prices over the medium to long-term.

The Board is committed to the view that the structural benefits of emerging markets as an asset class remain compelling. It offers the potential for risk reduction through diversification and the prospect of superior economic returns, as emerging countries have higher population growth, and higher per-capita GDP growth with relatively low debt levels, allowing them to outpace the developed world. The emerging markets’ rising middle-classes are still getting richer, are still buying more and these countries are investing heavily in their own futures and infrastructure.

The Board is confident that Fidelity, using the broad investment powers of the Company, will exploit this vast investable universe and have the ability to deliver strong and sustainable investment returns.

FEML : Fidelity Emerging Markets posts first results under new manager

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