Artemis SmartGARP Global Emerging Markets Equity Fund
Q3 2025 update

Performance 

• Artemis SmartGARP Global Emerging Markets Equity returned 14.4% in Q3, beating its benchmark by 1.8 percentage points
• The MSCI Emerging Markets index rose 12.6% in sterling terms and the IA Global Emerging Markets sector gained 11.8%
• The Fund is the best performer in its IA Global Emerging Markets sector over five and 10 years

Past performance is not a guide to the future. Source: Lipper Limited/Artemis as at 30 September 2025 for class I accumulation GBP. All figures show total returns with dividends and/or income reinvested, net of all charges. Performance does not take account of any costs incurred when investors buy or sell the fund. Returns may vary as a result of currency fluctuations if the investor's currency is different to that of the class. Classes may have charges or a hedging approach different from those in the IA sector benchmark.

Summary

• Broad-based monetary and fiscal easing is providing a virtuous backdrop for emerging market stocks
• The fund received strong contributions from commodities and China recovery stocks
• Our value bias remains substantial, with a 29% discount to the MSCI Emerging Markets index
• The portfolio also has favourable quality and growth characteristics compared with the market
• Read our latest insights on China here: Why China is unstoppable
• Watch our latest webinar: Emerging markets: Rebound or renaissance? 

Commentary

The recovery in emerging markets is gathering momentum. The Fed is cutting rates without a crisis. This is unusual. Historically, emerging markets have struggled when cuts have come in response to global shocks, as risk appetite has fallen and the dollar strengthened. This time is different. Growth is resilient, the dollar is weaker and emerging market central banks have room to ease. That combination is supportive for equities.

Yet global investors remain underweight emerging markets. Allocations are well below benchmark. Even after a strong quarter, flows into the asset class are still limited. This is beginning to change, but positioning remains light. For contrarian investors, this under-ownership is an opportunity.

China remains central. The economy is mixed: private investment is weak, confidence fragile and youth unemployment uncomfortably high. But policy is responding. Infrastructure spending is being rolled out. Cash transfers to households are starting. Service-sector support is being coordinated across multiple ministries. These measures are uneven, but the direction is clear. On the ground, we see companies such as consumer electronics specialist Lenovo benefiting from AI upgrades, while Geely continues to capture EV sales despite industry overcapacity. Lenovo is trading on about 10x earnings with ROE near 16%.

Valuations tell their own story. Chinese equities remain at multi-year lows relative to history and peers. Yet the market has already rallied strongly from last year’s troughs. History suggests such rallies do not end until valuations are stretched, policy tightens, or an external shock arrives. None of those conditions are in place today.

Brazil shows the other side of the emerging market story. What was a vicious cycle in 2024 has turned virtuous. Fiscal fears, currency weakness and bond volatility have given way to falling inflation expectations, lower real yields and renewed capital inflows. Domestic demand is picking up. Companies such as Ultrapar and Copa highlight this transition, combining modest valuations with solid cash generation and dividend yields above 5%. Across Latin America more broadly, monetary easing is under way and growth is beginning to recover.

Attribution – China and commodities lead; relative underweights in tech giants detract

Commodities were the biggest positive contributor during the quarter. CMOC (one of the world's largest producers of cobalt, molybdenum, niobium and tungsten), China Hongqiao (one of the world's largest aluminium producers), Tongling Nonferrous Metals (which focuses on copper) and Western Mining all rose strongly as tighter supply and firm prices drove earnings upgrades. Grupo México, which trades on 16x earnings with a 3.4% dividend yield, added further strength through its copper exposure.

China also contributed. Sino Biopharmaceutical performed well, supported by policy backing for healthcare innovation. Forecasts for the company have risen 25% in the past three months, underscoring its improving earnings profile. Geely gained from robust demand for electric vehicles (EV). It trades on only 9.6x earnings, with forecasts rising, and has been winning share in the domestic EV market helped by subsidies and strong brand recognition.

Technology was mixed. Wiwynn (a Taiwanese company providing cloud infrastructure products) and Samsung advanced on the back of strong server demand and signs of recovery in the memory cycle. Samsung’s profit forecasts have risen 14% in three months, while the stock still trades around book value — attractive given its role in AI-related memory.

The largest detractors came from our underweight positions in mega-cap technology. Taiwan Semiconductor Manufacturing Company (TSMC) and Tencent performed well in absolute terms, but our smaller holdings relative to the index weighed on performance. Sudden swings in sentiment, as seen this quarter, can be challenging to match in the short run. However, this stronger sentiment will ultimately prove rewarding for many of the fund’s positions, where valuations remain low and earnings momentum is improving.

Activity – Recycling capital into Brazil, China and energy

We made gradual adjustments during the quarter, creating room for new opportunities with stronger financial characteristics.

We increased exposure to companies where conviction is high: 

• In Brazil, we added to payments company Pagseguro Digital, which trades on 6.6x earnings with a return on equity (ROE) of 14% and recently received upgrades to profit forecasts, and Banco Bradesco, which offers a dividend yield of 7.6%. 
• In China, we added to electrical appliance manufacturer Midea and pork producer Muyuan Foods. Midea trades on just under 12x earnings with a near 6% dividend yield, while Muyuan has seen forecasts raised 11% in the past quarter. 
• We also increased our exposure to the copper mining, transportation and infrastructure conglomerate Grupo México and added to our position in Copa, Panama's flagship airline. Copa trades on only 6.7x earnings and yields 6%, benefiting from resilient regional air-travel demand.

New positions reflected our focus on energy and recovery themes. We initiated positions in Bharat Petroleum in India, which is valued at 8.2x earnings with forecasts upgraded nearly 8% in three months, and Adnoc Gas in Abu Dhabi, on 15x earnings with a 5% yield. In China, we added Haier Smart Home (10.4x earnings, 4.8% dividend yield) and Huayu Automotive Systems (8.9x earnings, dividend yield near 4%). In Latin America, we invested in the Brazilian energy and infrastructure conglomerate Ultrapar, trading on 10.8x with forecasts upgraded 8% in the past quarter.

To fund these moves, we trimmed some internet and hardware names in China and Taiwan where valuations had re-rated. Positions in Alibaba, JD.com, Tencent, TSMC and Gree Electric were reduced. These remain core holdings but were adjusted to free up capital for higher-conviction opportunities. We also exited smaller positions in SK Telecom, Sinotrans and United Tractors, reallocating capital to areas where we see stronger upside.

Positioning – Owning what others avoid

The portfolio remains positioned differently to peers. We are overweight China, where policy support and stabilising demand offer upside that is still not widely owned; and Brazil and commodities, both of which provide cyclical recovery potential alongside structural demand. We remain underweight India and Taiwan, where valuations are demanding and earnings momentum has slowed.

We remain heavily biased towards value stocks

The fund’s fundamentals are compelling. It trades on 9.7x earnings, a 29% discount to the market, with a higher return on equity and exposure to companies carrying net-cash balance sheets. Profit forecasts for our holdings continue to rise faster than those of the broader market. 

Value stocks in emerging markets have performed well in the past few years. Despite this, active managers are still biased towards higher-growth areas and have been slow to shift away. We offer a differentiation that could be helpful in a broader portfolio mix.

While many peers sit in areas of weak valuation support or earnings downgrades, our holdings are concentrated in cheap stocks with upgrades. This combination of value and improving fundamentals is rare.

Outlook

Emerging markets remain out of favour, but the case for them is strengthening.

• They provide diversification away from expensive developed markets. The forces that have driven US exceptionalism — a strong dollar, mega-cap dominance and emerging market share dilution — are fading.

• China is still heavily under-owned. Policy support is now evident and valuations are cheap. Sentiment is shifting, creating room for a re-rating.

• Value stocks remain priced for bad news. Many emerging market companies with strong balance sheets and rising earnings are still trading at crisis-level multiples. Improving sentiment offers scope for a meaningful recovery.

The fund is built differently to peers. It is concentrated in companies with low valuations, strong balance sheets and positive earnings revisions. It is tilted towards areas where sentiment is still poor but fundamentals are improving — China, Brazil, commodities and selective energy. This is not the consensus view. But we believe these are the conditions where emerging markets have delivered their strongest returns in the past.