Fairtree Global Emerging Markets Fund Q1 2026 Commentary

The MSCI ACWI Index declining 3.20% and the MSCI Emerging Markets Index comparatively resilient, declining 0.17%. The quarter was defined by two overlapping themes: a broad-based rotation away from technology and AI-linked equities driven by valuation concerns and competitive uncertainty, and a sharp geopolitical shock in March following the outbreak of the US-Iran war, which resulted in the closure of the Strait of Hormuz and a material spike in energy prices.

U.S. equities declined 4.6% over the quarter, weighed down by a rapid and correlated de-risking across technology-related holdings as advances in AI increased uncertainty around long-term growth expectations, competitive dynamics and valuation assumptions. In March, markets contended with a sharp rise in geopolitical risk following the outbreak of the US-Iran war. The conflict resulted in the closure of the Strait of Hormuz, lifting oil prices materially and adding to concerns around inflation, growth and financial conditions. The shock weighed on global sentiment and drove a broad-based de-risking across equity markets. Against this backdrop, the Federal Reserve kept policy rates unchanged throughout the quarter. Headline CPI ended the quarter at 3.3% year-on-year, its highest reading since May 2024, having held at 2.4% through January and February, while the unemployment rate stood at 4.3%.

Emerging markets delivered pronounced divergence across the quarter, declining 0.17%. January and February were strong, with the MSCI Emerging Markets Index rising 8.85% and 5.5%, respectively, driven by South Korea and Turkey in January and South Korea and Thailand in February, all benefiting from semiconductor strength and government-led market support programmes. March saw a sharp reversal, with the index declining 13.06%, as the geopolitical shock triggered significant capital outflows. South Korea and South Africa were among the hardest hit, declining 18.7% and 18.6%, respectively, while Saudi Arabia was the only emerging market to post a positive return, rising 4.7% on the back of higher oil prices.

On a sector level, Information Technology and Energy were the best-performing sectors over the quarter. However, the Fund’s underweight in both detracted from relative performance. Communication Services and Consumer Discretionary were the worst-performing sectors. Stock picking in Financials and Communication Services was the largest contributor to relative performance.

On a country level, year-to-date, China and Brazil were the largest detractors from relative performance, driven primarily by stock selection. In China, this was driven primarily by weakness in Prosus and negative sentiment toward its largest underlying asset, Tencent, alongside a broader derating across Chinese technology stocks. Taiwan also detracted, largely due to the portfolio’s structural underweight to TSMC, where it represents more than 13% of the benchmark, while the portfolio maintains the maximum position limit of 10% per stock, resulting in an unavoidable underweight. South Korea was another source of relative weakness, as the MSCI Korea Index rose 26.5% over the quarter despite a sharp 18.7% pullback in March, when the market came under pressure from the war-driven rise in energy prices given, Korea’s sensitivity as a large oil-importing economy.

Notable portfolio activity during the quarter was focused on adding to high conviction holdings at more attractive valuation levels. Positions were increased in TSMC, MSCI Taiwan ETF, Samsung, Tencent, Kaspi, Impala and Naspers, where recent share price weakness presented compelling entry points. New positions were initiated in Prosus and Sasol, the latter added to capture the improving outlook for oil-linked producers following the sharp rise in energy prices driven by the US-Iran war. The existing holdings in Valterra, Bidvest and Mr Price were fully exited during the quarter. Notable contributors to Fund performance over the quarter were TSMC (+135 bps absolute and -20 bps relative), Samsung (+102 bps absolute and -38 bps relative) and SK Hynix (+34 bps absolute and -12 bps relative). Notable detractors were Naspers (-102 bps absolute and -91 bps relative), Tencent (-52 bps absolute and +35 bps relative) and Trip.com (-38 bps absolute and -26 bps relative).

The Fund remains overweight in Kazakhstan and South Africa, where we continue to find compelling bottom-up opportunities. Conversely, the Fund remains underweight in China, India, South Korea and Taiwan, with India and Taiwan continuing to trade at elevated valuations relative to broader emerging market peers.

Reflecting on the performance of the Fund over the quarter, whilst the environment proved challenging, periods of sharp rotation, elevated correlations and valuation compression have historically created attractive conditions for active investors. Capital exits quickly in such environments but can return just as fast as fundamentals reassert themselves. We believe current conditions present a compelling opportunity set, with valuations in several of our holdings derating faster than underlying business fundamentals would suggest. Our approach remains valuation disciplined, style agnostic and highly active, and we continue to adjust positioning as opportunities evolve, focusing on situations where the risk-reward profile has improved meaningfully.