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Key highlights
- Dollar weakness and lower long-term bond yields provide a supportive backdrop for emerging markets.
- Mexican and Greek financial sector exposure, as well as strong stock selection in India, contribute to Fund’s solid quarterly performance.
- After a decade of underperformance, emerging markets remain a compelling investment opportunity at this point in the cycle.
Performance
The Liontrust Emerging Markets Fund returned 12.2% in sterling terms over the quarter, compared with the 12.6% return from the MSCI Emerging Markets Index comparator benchmark and the 11.7% average return from the IA Global Emerging Markets sector, also a comparator benchmark*.
Commentary
The third quarter saw emerging markets continue their robust performance so far in 2025, outperforming developed markets (+9.4%) and extending year-to-date performance for the first nine months to 18.6% compared with 9.6% for developed markets.
From a macro perspective, emerging markets continued to be supported by tailwinds: the ongoing weakness of the US dollar is traditionally a significant boon to emerging markets' performance, and whilst the dollar was largely flat over the past quarter, it remains at a significantly lower level than in recent years. In addition, an ongoing moderation in long-term bond yields have kept a ceiling on global borrowing costs, and with expectations of an easing cycle from the Federal Reserve, the backdrop for emerging markets looks supportive.
On the growth side, the continuing bullish tech cycle, driven by strong AI adoption and consequent heavy investment plans along the tech supply chain, has helped to support earnings expectations, especially in tech-heavy Asian indices. In China, surging domestic liquidity has supported markets, notwithstanding the reality of relatively weak economic data. Finally, the surging gold price has been a significant support to the materials sector – both gold miners themselves and also the broader mining universe, which has benefited from a broadening out of price appreciation from gold into platinum group metals and base metals.
For the quarter, the best-performing markets were generally in North Asia, where a resurgent Chinese market (+25%) coupled with strong returns from the technology sector in Taiwan (+16%) and South Korea (+15%) drove strong outperformance. Elsewhere, gold miners dominated returns in South Africa, pushing overall index returns to 23%, and Mexico continued its impressive recovery this year, registering 15% for the quarter. If the best performers were dominated by technology and commodities, the laggards in Q3 were more domestic markets such as the Philippines (-6.1%), India (-6.0%) and Indonesia (-1.4%). Whilst there was not any significant negative news flow in these markets, they continue to be out of favour whilst investors maintain an overriding preference for exposure to AI thematics.
The Fund enjoyed a solid quarter, with a 12.2% return approximately in-line with the strong benchmark performance. Key drivers of performance on the positive side were holdings in Mexican financials including microfinance institution Gentera (+24% in sterling terms) and Banorte (+7.6%), one of Mexico's largest financial groups. Also in Latin America, there were continuing strong returns for Laureate Education (+37%). Elsewhere, strong stock selection in India – such as Kaynes Technology (+16%) – supported relative performance, as well as exposure to Greek financials, which continued their strong performance throughout the third quarter. The key offsetting detractor for performance was undoubtedly the Fund's underweight position in technology stocks. Whilst the Fund continues to maintain overweight exposure to Korean tech stocks – especially Samsung Electronics (+38%) and SK Hynix (+19%) – we have held an underweight position in Taiwanese technology names, where valuations have become more extended.
A number of new Fund positions were initiated in China, including a return to eCommerce giant Alibaba, which increasingly looks a clear winner in the cloud sector, as well as JD Health and Wuxi Apptec in the healthcare sector and Tencent Music in media. In India there was some stock rotation, with additions of commercial vehicle manufacturer Ashok Leyland and Jindal Stainless at the expense of air operator Indigo and hospital Max Healthcare. To increase commodity exposure, copper miner Grupo Mexico was added, as well as Hon Hai in Taiwan, the world's largest electronics contract manufacturer.
The outlook for emerging markets remains supportive given ongoing US dollar concerns, increasing interest in diversifying portfolios away from excessive US/Magnificent 7 concentration, and the tailwind of easing financial conditions. Relative earnings growth (against developed markets) has picked up recently in a sign that corporates are seeing this beneficial backdrop translate into numbers. After a decade of underperformance, emerging markets remain a compelling investment opportunity at this point in the cycle.
| Sep-25 | Sep-24 | Sep-23 | Sep-22 | Sep-21 |
Liontrust Emerging Markets C Acc GBP | 15.1% | 14.6% | -2.0% | -16.7% | 15.5% |
MSCI Emerging Markets | 16.9% | 14.7% | 2.2% | -13.2% | 13.3% |
IA Global Emerging Markets | 15.6% | 13.0% | 2.6% | -15.4% | 17.0% |
Quartile | 3 | 2 | 4 | 3 | 3 |
*Source: FE Analytics, as at 30.09.25, primary share class, total return, net of fees and income reinvested.
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KEY RISKS
Past performance does not predict future returns. You may get back less than you originally invested.
We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.
- Overseas investments may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of the Fund.
- The Fund, may in certain circumstances, invest in derivatives but it is not intended that their use will materially affect volatility. Derivatives are used to protect against currencies, credit and interest rate moves or for investment purposes. The use of derivatives may create leverage or gearing resulting in potentially greater volatility or fluctuations in the net asset value of the Fund. A relatively small movement in the value of a derivative's underlying investment may have a larger impact, positive or negative, on the value of a fund than if the underlying investment was held instead.
- Credit Counterparty Risk: outside of normal conditions, the Fund may hold higher levels of cash which may be deposited with several credit counterparties (e.g. international banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash.
- Emerging Markets: the Fund invests in emerging markets which carries a higher risk than investment in more developed countries. This may result in higher volatility and larger drops in the value of the fund over the short term.
- Liquidity Risk: the Fund may encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings.
- ESG Risk: there may be limitations to the availability, completeness or accuracy of ESG information from third-party providers, or inconsistencies in the consideration of ESG factors across different third party data providers, given the evolving nature of ESG.
- Sanctions: certain countries, including China & Russia, have a higher risk of the imposition of financial and economic sanctions on them which may have a significant economic impact on any company operating, or based, in these countries and their ability to trade as normal. Any such sanctions may cause the value of the investments in the fund to fall significantly and may result in liquidity issues which could prevent the fund from meeting redemptions.
The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.
DISCLAIMER
This material is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.
It should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets.
This information and analysis is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
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