Emerging Market Knockout 2026

Finals

Part 1

Part 2

Part 3

Part 4

EMGF and FRDM have similar charts showing a breakout, but layering them produces the same chart.

What’s driving FRDM is also helping drive

The difference boils down to their exposure. Both funds have turnover of 20 percent (rounding) and that equates to changing the whole portfolio once every 5 years. Although FRDM is a very “active” fund in the sense of deviating from the EM category and benchmark indexes, its country exposure is more fixed because the politically-driven rankings of economies change slowly over time. One can be fairly confident that the regional exposure in these funds won’t shift in the short-term. Countries such as China and India aren’t likely to have political revolutions that have them jumping ahead of states such as Taiwan, Chile and South Korea in terms of politico-economic freedom. Not talking about their realized freedom either. Even if China went full capitalist on the economy, their freedom scores probably wouldn’t be high enough to earn a sizable weighting if any.

Ultimately, we’re doing a knockout and not giving brownie points for unique exposure.

EMGF gets the win here with an important caveat: if copper breaks out as copper/gold reverses higher. There’s no clear sign that true regime change to a commodities supercycle is here. Latin America has led this cycle, partially because China’s under deflationary pressure. Gold is strong and doing as well or better than copper. That speaks to fear or late inflation conditions. A deflationary bust is still a possible interlude before the supercycle kicks off.

If there’s a clear sign the market has shifted, then FRDM wins and also shift money from gold mining to copper mining stocks.

Longer-term, EMGF works as a replacement fund for core EM exposure. FRDM works more like a separate holding that could offset EM exposure in a portfolio, but would need a very long holding period to capitalize on the thesis.

FNDE looks like it might be headed for underperformance versus DEM, but here it pays to look ahead a bit. DEM is more stable because it owns big dividend payers like state-owned banks and telecom. It holds up in bear markets. FNDE is better suited for an EM bull though. The case for picking DEM over FNDE is more of a meta question, in that we probably want to hold cash and wait for a better buy in everything if DEM is set for leadership.

FNDE advances.

Finals

EMGF uses factors in selecting stocks for the fund. FNDE uses factors such as sales and book value for weighting companies. In an EM crisis that pummels banks, FNDE will load up on banks because it’s weighting them based on their economic impact more than price impact.

It boils down to another meta question: if you don’t want to own EMs here, then maybe EMGF is the better fund right now.

For an EM growth cycle though, FNDE owns the exact type of firms that are driving emerging market undervaluation such that it exists.

If you want to be long EMs, FNDE is the way to go.

Going back over all the funds, I cannot find one that challenges FNDE given the assumptions of an EM-led bull market with commodities element. The main factor to consider: does a U.S.-led global bear market happen first? Then it becomes a timing question, of when to buy the FNDE dip.

A separate question would be, does that leadership change or is it another sub-cycle in a yet-to-complete U.S.-led tech cycle? In that case, several funds with heavy tech exposure might extend leadership within the EM space, but yet again, it would argue for owning U.S. markets instead of gaining exposure through EMs. Again, wait for that bust and then use FNDE for core EM exposure in a portfolio.