Fidelity Emerging Markets trust has had a sharp fall in the past year, losing 27.9% of its net asset value and 30% of share price total return.
While there were many reasons for the portfolio’s low performance, chair Hélène Ploix stated in the trust’s annual reports for the year ended 30 June 2022 that “the most significant of these was surely Russia’s invasion of Ukraine.”
Prior to the invasion, the trust had an overweight position in Russia, an occurrence that the chair had “not been anticipated.”
She said that the adoption of a hedging index short position just prior to the invasion helped to counter this overweight somewhat. But she added that once the invasion started, this did not completely neutralize the over weights.
The trust manager chose to write the value of the Russian equities down to zero as a result of the sanctions imposed on Russia by Western nations. This had a significant negative impact on the valuation of the overall portfolio.
According to Ploix, the Russian invasion had also caused the trust to have additional issues, such as a sharp re-rating of oil-rich economies like Saudi Arabia, where the trust has been underweight, leading to worse relative underperformance in comparison to the index.
Ploix stated that although emerging markets are unclear, there are “reasons for hope”. She stated that many emerging nations would see less severe inflation and that the focus on renewable energy will boost demand for commodities.
The trust’s manager, Nick Price, added that it has increased positions in places like Brazil and the Middle East since the Russian invasion, concentrating on nations that export commodities.
As geopolitical tensions with the USA have increased, it has shied away from some regions of the Chinese market.
Price claimed that despite this, he still sees potential in a number of Chinese industries, including some stronger real estate developers who can profit from the subpar performance of the industry as a whole and comparatively inexpensive internet companies.
