Uncertainty looms over markets in any year, but 2025 may prove exceptionally so. A particularly unpredictable policy outlook in the United States, shifting sometimes week to week, clouds the future and limits the ability for firms to plan. That has contributed to significant investor demand this year for foreign equities and foreign diversification. While simple developed market diversification did well so far this year, emerging markets may be the next hot spot to watch in the second half.
See more: Fidelity Manager Granat Talks Options ETFs on VettaFi Symposium
Why look to emerging markets? Investors may be underweight to the category following a few years of China hesitation and underperformance. That approach may have missed out on some important positive trends for China. It also eschews markets in South and Southeast Asia and other key regions that can provide the long-term growth potential that can both diversify and invigorate portfolios.
Emerging Markets and Diversification
India, for example, continues to offer equities backed by some strong supporting factors. The South Asian nation offers a burgeoning and educated class of professionals to boost its economic growth. Alongside some large legacy names in more stable industries like financials, that well-educated group is also helping to drive exciting growth in tech. Those are just two factors that speak to the country’s appeal in emerging markets spaces.
Emerging markets ETFs can provide a powerful set of options to get exposure therein. The Fidelity Enhanced Emerging Markets ETF (FEMR ) and the Fidelity Emerging Markets Multifactor ETF (FDEM ) provide two routes into the category. FEMR charges a 38 basis point (bps) fee to actively invest in emerging markets stocks based on factors like valuation, growth, and quality. That has helped FEMR return more than 20% YTD per YCharts.
FDEM, meanwhile, asks a 27 bps fee to track a proprietary multifactor index approach to emerging markets. The strategy looks for lower volatility and positive momentum in addition to classic metrics in quality and valuation. That has helped the fund return 17.5% YTD per YCharts.
Taken together, those strategies could help investors diversify into some upside opportunities. FDEM and FEMR may be ones to watch in the second half to fill that role.
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Fidelity Investments® is an independent company unaffiliated with VettaFi LLC (“VettaFi”). These articles do not form any kind of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments, nor is such a relationship created or implied by the articles herein. VettaFi LLC is the author and owner of these articles.
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