In the fourth quarter the fund appreciated by 6.2% bringing the full year return to 28.1%. A fourth quarter dividend was declared of 0.137511p giving a full year net yield after withholding taxes of 5.2% which compares to December UK CPI of 3.4% year on year.
Our primary focus is on total shareholder returns, but against benchmarks over the year the fund has outperformed MSCI Emerging Markets by 3.8% and the MSCI Emerging Market High Dividend index by 12.1%. Since inception in June 2022 the fund has outperformed both of these every calendar year, and in aggregate by 39% and 41% respectively. Over the same period the distributing shares have delivered a twelve month quarterly dividend yield spread over UK inflation of between 180 and 500 basis points.
To describe 2025 as ‘an eventful year’ would be a clear understatement. We had the predictable ruptures in geo-politics, ‘dynamic’ tariff policies, steepening yield curves and monetary policy in a state of flux at some major Central Banks. The meteoric rise of AI embodied technological and societal disruption and last, but by no means least, we witnessed the remarkable rally in gold and other precious metals. This was the clearest illustration of another key theme for the year, the de-dollarisation of financial holdings.
Despite all this, with the exception of the Liberation Day ‘flash-crash’, market volatility was benign. We exit 2025 with positive performance in most asset classes (other than the US dollar), US inflation lower than the beginning of the year and growth surprising to the upside. Despite the well-flagged re-financing risks of covid-era debt (both corporate and sovereign), bond volatility has trended lower as equity markets have trended higher. As Elon Musk says “the most likely outcome, is often the most ironic”.
After such a strong year, the natural question is whether the rally can continue into 2026. The short answer is – yes, at least over the near term. The forces that have supported EM through 2025 remain broadly intact, and in some respects are even deepening.
First of all the earnings picture is supportive. This year marks a post-Covid watershed when earnings have not been downgraded as the year progressed, whilst estimates for 2026 have been trending higher and are now a very respectable +18-20%. While this growth is being led by ‘new economy’ sectors of Technology and Communications, the picture is broad-based with all sectors estimated to deliver double digit growth, the only exception being Energy.
These numbers are given credibility by a positive global growth outlook, which historically has been the single most important driver of EM asset returns, with estimates of around 2.7%. However unpacking this shows a sizeable growth differential with developed markets at 1.7% versus EM GDP growth of a very healthy 4.2%.
This comes at a time when global inflation has been surprising to the downside and is now back to the pre-covid range, allowing monetary policy to shift to an accommodative stance with most EM central banks having cut policy rates more than expected (the exception being Brazil) and without triggering the usual spike in volatility or FX stress.
With index returns of 34%, there’s been some multiple expansion but we’re still in the middle of the historic range, and at the wider end to the S&P at 35% discount. With US economic policy uncertainty having a clear impact on the perceived value of the USD, the trend in diversification away from US assets looks to be gathering momentum, with the parabolic moves in gold and silver a clear example.
Whether this represents a more significant longer term inflection in the asset class remains to be seen, but with resilient growth, improved corporate and policy credibility and clear uncertainties in other equity regions, the path of least resistance continues to favour EM assets.
Performance
In the fourth quarter the fund returned 6.2% and was led by South Korea and South Africa. Indonesia and China were the weakest markets but these were only marginally negative. Samsung Electronic Preference shares was the highest contribution to returns performer given the near 50% move in HBM and DRAM memory contract prices. With the dramatic shift in profitability, there’s significant scope for higher capital returns due to its high cash holdings and free cashflow, of which they have typically returned 50%. The preference shares trade at a 25% discount to the ordinary shares which gives additional yield enhancement. The other country of note has been South Africa where the strength in gold and precious metals have reduced the country risk, positively reflected in our financial holdings and the currency.
Given the success of the ‘Value-up’ reforms South Korea was the best performing market. Achieving the target of Kospi 5000 has taken less than a year and is a clear illustration of the positive trends in corporate governance. The second place went to Greece with much lower exposure, and was illustrative of the single stock performance primarily coming from the banks.
What was also pleasing was the distribution of positive performance coming from the country allocations which underpins our philosophy of only allocating to the most attractive bottom-up positions available. The only country to make a negative performance was Qatar where we have one holding which was down 5bp.
Over the year the gold cup for the top performing company went to King Yuan Electronics, which is a Taiwanese chip testing company with a near monopoly in testing Nvidia chipsets. One of the main rationales for buying this position shortly after ‘Liberation Day’ sell-off was that as a testing company they charged domestic Taiwanese companies by time and were therefore immune to tariffs.
Looking forward, we are increasingly drawn towards some of the more domestically oriented consumer companies and more defensive bond proxies which have been out of favour recently, these now offer good value and have some attractive yields. Hong Kong real estate is another area that we’re increasing exposure now that the cycle has turned where we can see genuine green shoots that could lead to a multi-year recovery. We are also enjoying the rally in precious metals, but with have exposure to companies where capital allocation trends and alignment are positive, and are therefore more than just a reflection of the underlying commodity.
These are just a few, and we’re finding no shortage of investment opportunities across a wide spectrum of countries. As always, we are looking to only allocate to the best companies where we see good capital allocation discipline and alignment with minorities in returning excess capital to shareholders.
