Emerging markets continue to present some of the most dynamic and attractive investment opportunities in global equities. These economies are evolving rapidly, benefiting from structural shifts, technological advancements, and increasing consumer demand.
Over the past five years, the Fairtree Global Emerging Markets Prescient Fund (“the Fund”) has successfully navigated these changing conditions, demonstrating its ability to identify growth opportunities and deliver strong, risk-adjusted returns. Our ability to navigate diverse market conditions with a fundamental, research-driven approach was further recognised when we received the Citywire South Africa 2024 Manager Award in the “Equity – Global Emerging Markets” category, beating well-known nominees like Franklin Templeton, T. Rowe Price and GQG Partners LLC.
As we mark our fifth anniversary, we remain committed to identifying and capitalising on new opportunities in emerging markets while maintaining discipline and remaining active in our approach.
Investment philosophy
The Fund is built to deliver long-term capital growth by investing in large-cap and mid-cap stocks within emerging markets or companies that derive a significant portion of their revenue, profit or asset base in emerging economies.
At the cornerstone of our investment process is the ability to identify companies with growing free cash flows at attractive valuations. Our philosophy is built on a highly active and style-agnostic approach. This has proven effective across multiple market cycles, enabling us to capture opportunities and manage risks efficiently in a fast-changing global environment.
Why emerging markets are more attractive than ever
Emerging markets (EM) present a highly favourable environment for active investing, driven by significant performance dispersion across countries. Every year, we see more than 50% dispersion in country-level returns, creating a favourable environment for active managers who tactically rotate capital to generate superior long-term returns.
Source: Fairtree, Bloomberg as at 31 December 2024.
Sector exposure: A structural shift toward growth
The Fund’s benchmark, the MSCI Emerging Markets Index, is evolving and has undergone a fundamental transformation, signalling a new era for growth. We see declining dependence on cyclical, resource-heavy, capital-intensive sectors like commodities and telecommunications. Meanwhile, exposure to high-growth industries such as semiconductors, e-commerce, and fintech has increased.
The benchmark’s reduced reliance on global commodity demand has created a more dynamic, growth-oriented investment landscape.
Source: Fairtree, Bloomberg as at 31 December 2024.
Country exposure: A changing landscape
We see these same trends shaping the geographic composition of the EM index, with a declining weight in traditional commodity-exporting nations such as Brazil, Russia and South Africa. There is rising exposure to structurally attractive markets like India and cyclical beneficiaries of stimulus like China. These shifts reinforce the importance of active positioning to capitalise on emerging trends.
Source: Fairtree, Bloomberg as at 31 December 2024.
Portfolio positioning
Our portfolio positioning remains disciplined, ensuring we allocate capital efficiently in markets with the best risk-reward dynamics.
We see a compelling opportunity in Chinese e-commerce. These companies are cash-flush, profitable, and well-positioned to return capital to shareholders. Recent Chinese stimulus measures further enhance the recovery potential in consumer spending and corporate earnings. We believe these valuations present an attractive entry point.
In Taiwan, TSMC stands out as the global leader in semiconductor manufacturing. The production of advanced chips is an intricate and capital-intensive process requiring substantial scale to achieve profitability. TSMC’s cutting-edge technology, extensive intellectual property and technical expertise create a formidable moat, reinforcing its position as the dominant player in the industry. Its efficiency and innovation continue to drive long-term growth, making it a key holding in our portfolio.
Kazakhstan remains our largest overweight relative to the MSCI EM benchmark, with strong conviction in Kaspi and Halyk, both of which continue to generate compelling returns.
Outlook
As emerging markets evolve, we remain focused on capturing high-quality opportunities where valuations, earnings potential, and macro trends align. With the benchmark showing reduced reliance on slow-growth, cyclical sectors and shifting towards high-growth industries, we see a compelling opportunity for investors.
We remain focused on delivering superior risk-adjusted returns through disciplined investing, identifying high-quality businesses at attractive valuations, and positioning our portfolio to capitalise on emerging market transformations. As we look forward, we are optimistic about the opportunities that lie ahead for our investors.
Disclaimer:
Fairtree Asset Management (Pty) Ltd is an authorised financial services provider (FSP 25917). Collective Investment Schemes in Securities (CIS) should be considered as medium- to long-term investments. The value may go up as well as down and past performance is not necessarily a guide to future performance. CISs are traded at the ruling price and can engage in scrip lending and borrowing. A schedule of fees, charges and maximum commissions is available on request from the Manager. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. Performance has been calculated using net NAV to NAV numbers with income reinvested. There is no guarantee in respect of capital or returns in a portfolio. Prescient Management Company (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002). The full details of awards and the basis of the awards are available from the manager. For any additional information, such as fund prices, fees, brochures, minimum disclosure documents and application forms, please go to www.fairtree.com.
