Emerging Market Funds: Performance Analyzed

Actively managed global emerging market (GEM) funds are experiencing a surprisingly strong run, achieving their best returns in eight years. So far in 2025, these funds are on track to deliver around 26% in returns, a significant jump compared to the MSCI Emerging Markets (EM) Index, which has risen nearly 28% during the same period. This performance highlights the potential of strategic investment approaches.

Key Points

• Strong returns: GEM funds up ~26% in 2025.
• EM Index up ~28% – Korea & China drive gains.
• Few funds beat benchmark – less than 40% successful.
• Korea & China key to success, India a drag.
• Value & Growth styles impacted performance sharply.
• India exposure reduced by global funds, re-rating possible.

The performance of these funds is largely driven by the success of specific countries and investment styles. South Korea and China have delivered strong gains, boosting returns for funds with significant exposure to these markets. Conversely, India’s performance has been weaker, dragging down the overall returns of many GEM funds.

Investment strategies also play a crucial role. “Value” managers, who were overweight in South Korea and underweight in India, have performed well. “Aggressive Growth” funds, with a different approach, have lagged behind. This illustrates the importance of aligning investment strategies with market conditions.

Global fund managers are reacting to India’s underperformance. Jefferies has reduced its India weighting in its Asia Pacific portfolio, and other funds are similarly trimming their exposure. This suggests a growing recognition that India’s recent struggles may be a temporary setback.

Long-term data still favors active management. Over the past 22 years, actively managed GEM funds have outperformed the MSCI EM ETF (EEM) in 14 of those years, demonstrating the long-term value of skilled investment decisions. Despite recent challenges, the potential for active managers to deliver superior returns remains.

India’s current underweight position in global EM portfolios is among the lowest ever recorded. This suggests that a potential re-rating of Indian equities is possible as the country’s economy improves.

“Ultimately, investment decisions should be based on careful analysis and a long-term perspective.”