Ian Cowie: the investment trust gems returning to form

Our columnist assess a sector that finds itself back in fashion.

4th June 2026 11:39

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Higher oil prices hurt energy-hungry developed economies but help emerging markets which often produce “black gold”.

But that’s only part of the explanation for a dramatic reversal of fortunes which has seen investment trusts in the Association of Investment Companies (AIC)’s Global Emerging Markets (or “gems”) sector deliver “astonishing” total returns averaging 74% over the last year.

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Another factor making “gems” sparkle, with treble the total return from investment trusts of all descriptions over the last year, is their growing importance in new technology in general and artificial intelligence (AI) in particular.

For example, all four of the investment trusts currently leading the sector have the same top holding; Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM).

As its name suggests, TSMC makes the microchips that go into almost all electronic equipment these days and are required in vast quantities for AI data centres.

This business accounts for 11% of the net asset value (NAV) of Fidelity Emerging Markets Ord (LSE:FEML), which currently leads its sector with total returns of 103%, following 76% over five years and 261% over 10 years.

To put those numbers in perspective, the average total returns from investment trusts of all descriptions, excluding 3i, are 26%, 31% and 173% over the same three periods.

After a prolonged period when American assets seemed to be the only game in town, the appeal of global emerging markets is being rediscovered.

Templeton Emerging Mkts Invmt Tr TEMIT (LSE:TEM) ranks second in this sector over a year but leads over the decade with total returns of 97%, 90% and 381% over the usual three periods.

TSMC accounts for a somewhat punchy 17% of NAV but this fund’s top 10 also includes Samsung Electronics Co Ltd DR (LSE:SMSN) and Hyundai Motor, both based in South Korea, and ICICI Bank Ltd ADR (NYSE:IBN) of India.

JPMorgan Emerging Markets Growth & Inc (LSE:JMGI) and JPMorgan Emerging Markets Div Inc (LSE:JEMI) rank third and fourth in this sector over the last year.

In addition to leading with TSMC and including Samsung in their top 10 assets, these funds also gain exposure to high oil prices with, respectively, the self-descriptive Petroleo Brasileiro SA Petrobras ADR (NYSE:PBR) and PetroChina Co Ltd Class H (SEHK:857).

The odd one out among outperforming emerging markets is BlackRock Frontiers Ord (LSE:BRFI), which leads this AIC sector over five years with total returns of 28%, 102% and 163% over the usual three periods. Unlike all four sector-toppers over the last year, BRFI does not hold any TSMC but instead focuses on financial companies, principally banks, in markets even smaller and less regulated than typical emerging markets.

These are led by Saudi Arabia, the United Arab Emirates and Kazakhstan, which together account for 30% of BRFI’s portfolio and benefit from booming energy prices, including - in the case of the latter country - uranium.

This fund is also unusual for an emerging market portfolio in yielding 3% of dividend income that has increased by an annual average of 7.2% over the last five years.

It is important to be aware that dividends are not guaranteed and can be cut or cancelled without notice.

However, if that rate of ascent could be sustained, BRFI’s shareholders’ income would double in a  decade.

Here and now, Annabel Brodie-Smith, communications director at the AIC, told me: “Emerging markets are not just about cheap manufacturing anymore, they are global leaders in research, innovation and production at the cutting edge of the unprecedented AI hardware boom.

“Many emerging markets are either exporters of energy, or home to some of the leaders in the technology revolution and are helping to power the astonishing growth in this AI sector.”

With many shares in developed economies trading at or near all-time highs, the recent recovery in emerging markets serves as a reminder about the virtues of diversification.

America and AI are not the only games in town and some exposure to energy and other commodities might help to soften the blow if unexpected setbacks lie ahead.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in BlackRock Frontiers (BRFI) as part of a globally diversified portfolio of investment trusts and other shares.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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