In the third quarter of 2025, the Fidelity Emerging Markets Fund demonstrated a strong performance, with its Retail Class shares achieving an 11.72% return. This impressive gain exceeded its benchmark, the MSCI Emerging Markets Net MA (29-Jun-2018) Linked Index, which recorded a 10.64% increase during the same period. This outperformance occurred in a quarter where the broader emerging markets significantly outperformed international developed markets, as evidenced by the MSCI EAFE Index's 4.80% advance. However, the investment landscape was not without challenges, as robust economic growth was counterbalanced by concerns over subdued corporate earnings, high valuations, and a noticeable retreat of foreign investor capital.
The Fidelity Emerging Markets Fund employs a strategic investment philosophy focused on achieving capital appreciation within diversified emerging markets. The fund's approach is rooted in the belief that financial markets are not entirely efficient, influenced by various factors including investor psychology and market dynamics. This perspective allows the fund to identify and capitalize on mispricings and opportunities that might be overlooked in a perfectly efficient market. The fund's managers leverage their in-depth research and analytical capabilities to construct a portfolio that can navigate the complexities and capitalize on the growth potential inherent in emerging economies.
The fund's notable success in Q3 2025 can be attributed to several key factors. A significant portion of its outperformance stemmed from astute security selection within specific countries, particularly China and South Korea. Additionally, strategic overweighting in high-growth sectors such as information technology and communication services played a crucial role. These sector allocations allowed the fund to capture upside from companies poised for expansion and innovation in the rapidly evolving digital landscape of emerging markets. The ability to pinpoint resilient and growing companies in these regions, despite broader market sentiment challenges, proved to be a critical differentiator.
Looking ahead, the Fidelity Emerging Markets Fund maintains a nuanced position regarding China. While generally underweighting the country due to concerns in sectors like banking and real estate, the fund is strategically focused on high-growth segments. It seeks opportunities in technology and healthcare within China, anticipating sustained structural growth driven by the expansion of the middle class. This selective approach aims to harness the benefits of China's economic development while mitigating exposure to more volatile or challenging areas. This targeted strategy underscores the fund's commitment to careful risk management and selective investment in promising sub-sectors.
However, the fund's journey has not been without its setbacks. Detractors from recent performance included exposure to the Indonesian market and an underweight position in Alibaba. Specifically, Bank Central Asia experienced lagging performance, primarily due to slower credit growth and broader headwinds affecting the financial sector. These instances highlight the inherent volatility and unpredictable nature of investing in emerging markets, where regional economic shifts and specific company challenges can impact portfolio returns. Despite these challenges, the fund's overall strategy has demonstrated resilience and an ability to deliver strong returns.
The Fidelity Emerging Markets Fund's strong performance in the third quarter of 2025, outperforming its benchmark, underscores its effective investment strategy and astute market navigation. Despite a challenging global economic backdrop characterized by investor caution and capital outflows, the fund's focused approach on undervalued opportunities and strategic sector allocations in key emerging economies yielded significant gains. This success demonstrates the fund's capability to generate value for investors by carefully selecting securities and proactively managing exposure in dynamic market conditions.
