Why active management matters in emerging markets
Emerging markets are no longer a side story
They represent over 60% of global economic output, as measured by gross domestic product.1
Emerging markets play an increasingly central role in the global economy, offering access to growing regions, expanding consumer bases and companies shaped by long-term economic change. Their growing share of global activity can also help diversify portfolios beyond developed markets.
These opportunities have the potential to provide returns but can come with higher uncertainty and risks. That’s where an active approach can matter.
Emerging markets are not one size fits all
Unlike developed markets, emerging markets can change quickly and not always smoothly. Investors may face:
- Political and policy shifts that can affect entire markets or industries.
- Currency swings that can influence returns, even when companies perform well locally.
- Liquidity constraints or capital controls that can affect the ability to buy sell, or move money out of a market.
- Different regulatory and governance standards, making company analysis more complex.
These challenges mean that not all companies, or countries, carry the same level of risk, even if they sit side by side in an index. They can also create greater differences between stronger and weaker businesses, as less consistent disclosure, uneven analyst coverage and varying governance standards may leave some companies better understood than others.
Index-only exposure may miss the bigger picture
Passive strategies aim to track market indexes. In emerging markets, that approach can have limitations.
- Concentration risk: Many indexes are often heavily weighted toward a small number of countries or larger companies.
- No ability to be selective: Indexes typically include companies based on market capitalization, not fundamentals.
- Limited flexibility: Passive strategies can’t adjust when risks rise or conditions change.
In markets where political, economic and company specific risks can evolve quickly, flexibility and judgment can matter.
How active management can make a difference
Active management focuses on decision-making, not just market exposure.
- Identify stronger businesses with durable balance sheets and clearer governance.
- Avoid areas where risks outweigh potential rewards.
- Adapt to changing conditions, rather than waiting for an index to adjust.
- Balance opportunity with risk, especially during periods of market stress.
Instead of simply owning the entire market, active managers focus on carefully choosing investments based on research and an awareness of risk, which can lead to better investor outcomes.
Fidelity’s active approach to emerging markets
Fidelity’s investment process is built around understanding businesses, not just markets. It is designed to help investors navigate emerging markets thoughtfully, not blindly.
Fidelity’s active investing in emerging markets provides:
- In depth, bottom up research to uncover meaningful fundamental differences between companies.
- Ongoing risk assessment, recognizing that downside risks matter just as much as upside potential.
- Selective portfolio construction, informed by local market insight and fundamental analysis.
- Experienced portfolio manager supported by global research teams, local insights, and disciplined active management.
The goal is not to mirror an index, but to navigate complexity with greater clarity and discipline in order to beat it.
The bottom line
Emerging markets can offer compelling long-term opportunities, but they demand careful navigation.
Political change, currency volatility and regulatory differences can all shape outcomes. In this environment, active management brings judgment, flexibility and insight that passive strategies may lack.
For investors seeking exposure beyond developed markets for broader diversification, active management with thorough research and disciplined risk management can be a smarter way to invest in emerging markets.
1 Source: International Monetary Fund, World Economic Outlook.
