The fund with a different take on a leading market

Emerging markets (EM) equities have been one of the strongest-performing regions of the market so far in 2026, with the average fund in the Investment Association (IA) Global Emerging Markets sector returning roughly 19% as of the end of July, while the MSCI Emerging Market Index has climbed 20%. 

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Historically, EM investing has been heavily associated with China, as well as commodities and low-cost manufacturing, while many have considered the US as the fount of innovation and technology. 

Today, however, some of the world’s most innovative companies are found within emerging markets, particularly across Asia’s technology supply chain. 

The artificial intelligence (AI) infrastructure build-out has completely reshaped the opportunity set in emerging markets. 

However, the strength of this year’s rally has resulted in the emerging markets index becoming increasingly concentrated in a small number of technology-led companies. 

As of July 2026, the top 10 constituents of the market capitalisation-based MSCI Emerging Markets Index accounted for around 44% of the index, with Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM) alone representing 15.5%.

That has led to Taiwan now surpassing China’s allocation in the index.

This may leave some investors to ponder whether the benchmark has become overly dependent on a handful of companies and a single structural theme.

As the opportunity set becomes more concentrated, the role of an active manager could become increasingly valuable.

One fund for investors to consider in this space is the Invesco Global Emerg Mkts UK Z Acc (B8N4673) fund.

The fund aims to achieve long-term capital growth by actively investing in a diversified portfolio of emerging market equities. 

Charles Bond assumed lead management responsibilities in January 2020 and is supported by an experienced team of 10 portfolio managers and analysts, with a collaborative research culture underpinning decision-making.

What does the fund invest in?

The team takes an unconstrained, contrarian approach, seeking to identify companies trading materially below their estimate of intrinsic value. 

The research process combines detailed financial analysis, including balance sheet strength, profitability and cash generation, with a qualitative assessment of competitive advantages, management quality and key risks.

The resulting portfolio will often take meaningful deviations from the MSCI Emerging Markets index. 

Currently, the allocation to Brazil of 9.6% represents the fund’s largest overweight position (+5.5%), reflecting exposure across the energy, financials, consumer and materials sectors. 

The team continues to view valuations as attractive, with the market trading on a price-to-book ratio of 1.75, below historical averages, while offering high dividend yields. 

The fund also maintains modest overweight positions in Hong Kong/China, Indonesia and Thailand.

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A recent addition to the fund was Bangkok Bank. Management noted that they were attracted by the bank’s extensive regional franchise, strong capital position and undemanding valuation. 

Galp Energia was another recent purchase, providing exposure to high-quality upstream assets in Brazil. 

The company’s balance sheet strength was another factor viewed favourably by the Invesco team. 

In contrast, the largest underweights are to Taiwan (-6.9%), India (-6.1%), and South Korea (-3.2%), where valuations are trading at a significant premium to historical levels. 

These countries still have meaningful allocations within the portfolio of 19.7%, 5.6% and 17.1% respectively.

From a sector perspective, the fund also has some notable deviations from the MSCI Emerging Markets index. 

Consumer stocks are viewed favourably by the team, with consumer staples the largest overweight (+4.5%), followed by consumer discretionary (+3.6%). 

One of the themes in the portfolio is the allocation to oversold Chinese consumer stocks, which the team believes have the potential to re-rate.

The largest deviation from the index is the fund’s 12.9% underweight to information technology. 

Dominant semiconductor companies in Taiwan and Korea remain well represented, given their long-term earnings power. 

However, management believes technology valuations are appearing increasingly stretched and they have been gradually taking profits.

How has the fund performed?

The fund boasts an impressive long-term track record, outperforming both the MSCI Emerging Markets index and its Investment Association (IA) sector by annualised 3 and 3.9 percentage points, respectively, over the past 10 years. 

Since Bond assumed lead management responsibilities, he has continued to deliver strong relative performance, outperforming both the index and peer group over this period.

Despite the strong performance of emerging markets this year, the first half of 2026 presented some challenges for the fund. 

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Until the end of June, the fund lagged both its benchmark and peer group, primarily due to its significant underweight position in technology, particularly TSMC and SK hynix Inc ADR (NASDAQ:SKHY), as the market was dominated by AI-related semiconductor stocks. 

However, by the end of July, the fund had returned 20.5%, ahead of the IA Global Emerging Markets sector average of roughly 19%, coinciding with a sell-off in volatile Asian technology stocks.

This highlights how quickly market leadership can shift and reinforces the importance of evaluating the strategy over a longer investment horizon. 

The fund’s relatively resilient performance during weaker markets further supports its role as a long-term holding for patient investors. For example, the fund declined 5.6% in 2022, compared with a 12.2% fall for the IA Global Emerging Markets sector. 

Source: Morningstar Total Returns (GBP) to 31/07/2026. Past performance is not a guide to future performance.

Why are we highlighting this fund?

Emerging market equities have delivered impressive gains so far this year and the projected outlook for this asset class remains positive. 

Consensus forecasts for the MSCI Emerging Markets index point to earnings growth of 61% in 2026 and 23% in 2027, well ahead of developed markets, while valuations remain at a meaningful discount, particularly compared with the US. 

This suggests the asset class retains the potential for further growth. 

However, the recent volatility in Taiwan and South Korea highlights the risks associated with the index’s concentration. 

Movements in these markets can therefore have a meaningful impact on overall emerging market returns, particularly given their exposure to the increasingly dominant AI and semiconductor theme.

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Given the increasing concentration of the MSCI Emerging Markets index, the case for a differentiated active approach appears compelling. 

The Invesco fund provides investors with broader exposure across the asset class and reduces reliance on a narrow group of benchmark constituents.

The strategy has built an impressive long-term performance record and has demonstrated an ability to navigate periods of stress within emerging markets. 

Delivering long-term outperformance has required independent thinking and a willingness to differ from the market.

The strategy is available at an ongoing charge of 0.75%, making it competitively priced relative to its sector peers.

The fund’s instrument page can be viewed here.

Please note the fund highlighted was selected via the Highly Rated Funds Tool. For more investment ideas, visit The Highly Rated Funds tool. The information provided should not be considered a personal recommendation.