Fidelity Emerging Markets (FEML) has hailed its stunning 92.3% investment return for the year to 30 June as a “resounding vindication” of fund managers Nick Price and Chris Tennant.
The total underlying return on net asset value (NAV) smashed the impressive 48.2% return from the MSCI Emerging Markets index and drove a 99.3% total return for shareholders, effectively doubling their money, said chair Heather Manners.
Manners praised Price and Tennant’s skill in managing the volatility in key semiconductor stocks, such as Korea’s SK Hynix and Taiwan Semiconductor Manufacturing Company, and for taking a broad approach to artificial intelligence by picking the materials and industrial companies also benefiting from the rapid development of AI.
Approaching the fifth anniversary of Fidelity’s appointment as fund manager in place of former adviser Genesis, the £584m investment company has achieved four years of outperformance of the MSCI benchmark and a third successive year of strong absolute gains, leading to last week’s announcement that a 25% tender offer would not have to be held.
“Over the 12 months under review the performance has been truly stellar, and the board and I would like to congratulate the portfolio managers and their team on these results and thank them for their efforts,” said Manners.
“In fact, performance has been so strong that your company ranked in the top 10 of all investment trusts (over 200 of them) for NAV and share price total return performance over both one and three years to 30 June 2026, ahead of all peers in the Association of Investment Companies’ (AIC) Global Emerging Markets sector,” Manners said.
The latest period of outperformance coincided with lead manager Price moving from London to Hong Kong last September to reflect the importance of Asia, which accounts for 80% of emerging markets, and to be closer to Fidelity’s team of regional analysts based there.
Manners said that in an excellent year for emerging markets, the pair had generated excess returns through using all the tools at their disposal. For example, shorting shares they believed would fall had accounted for around a quarter of the year’s outperformance.
Seling options to generate income and holding some smaller and medium-sized companies had also contributed to portfolio returns, she said.
“The ability to take such positions is a key advantage of the closed-end structure, while the execution of the strategy is greatly facilitated by the research efforts of Fidelity’s large team of locally based emerging markets analysts, as well as derivatives and risk management specialists,” Manners said.
The dollar-based company is recommending a final dividend of 33 cents per share, up from 26 cents, for shareholder approval at the annual general meeting on 1 December.
The extra return enjoyed by shareholders over the underlying growth in NAV reflected the FEML board’s efforts to manage the share price discount through buybacks. The discount narrowed from 10.5% to 7.4% in response to purchases of 13.2% of its shares during the year.
In addition, the company bought out the 25% of shares held by Strathclyde Pension Fund last November. Continued marketing of FEML following the institutional investor’s exit had seen the proportion of retail investors on the register more than quadruple from 4.1% to 18.2%. The board welcomed this broadening of the shareholder base.
Our view
Richard Williams, senior analyst at QuotedData, said: “Emerging markets had an exceptional year, but a 92.3% NAV return against 48.2% from the index shows there was considerably more at work than a rising tide. Stock selection was strong, particularly across Asian technology and resources, while the flexibility of FEML’s mandate proved its worth, with short positions alone contributing around nine percentage points of relative performance despite the strength of markets. Importantly, this is not just a one-year story: since Fidelity took over in 2021, FEML has returned 14.8% a year compared with 10.2% from the index. That record has comfortably cleared the performance hurdle for its conditional tender, meaning the 25% tender will not take place, while the continuation vote in December should now be something of a formality.”
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