Emerging-market equity ETFs are rarely just a regional bet. For long-term investors, the bigger question is how the portfolio is built, because country exposure, sector mix and stock concentration can change the risk profile quickly. An actively managed approach can be useful when broad index weights would otherwise overexpose a fund to a small set of countries, industries or large issuers.
That makes the selection process the real differentiator. In an EM fund, the definition of the universe matters: domicile, assets and revenues can all influence what actually qualifies as emerging-market exposure. Investors looking at an active ETF should therefore pay attention to how the manager sources ideas, how many internal research inputs feed the portfolio, and whether the process is designed to balance conviction with risk control.
Portfolio flexibility can also help with implementation. EM markets can be less liquid and more sensitive to policy, currency and geopolitical shifts than developed markets. An ETF structure gives investors daily tradability, but the underlying holdings still need to be managed with care. That means the fund’s ability to size positions, adjust exposures and avoid unwanted concentration may be just as important as the headline strategy.
For allocators, the practical takeaway is simple: use EM exposure as a deliberate diversifier rather than a satellite position built on broad assumptions. A fund like FFEM is best evaluated not only on what it owns, but on how it may behave when markets are unstable, leadership rotates, or individual country risks become more pronounced.
FFEM: An Active Approach to EM
Fidelity applies this actively managed mandate to the Fidelity Fundamental Emerging Markets ETF (FFEM). The fund seeks long-term capital growth by investing in EM securities, depositary receipts, and related derivatives. FFEM defines EM using MSCI and World Bank criteria, evaluating issuer domiciles, assets, and revenues. Its unique investment process starts with rigorous fundamental analyst research and FMR reference portfolios. The investment team then applies a quantitative portfolio construction process to emphasize high-conviction securities as well as to manage risk and liquidity across various EM countries. “In emerging markets, we have a dedicated emerging markets portfolio management and research teams” Treacy said. “We draw upon the insights from five different emerging market experts at our firm. We look across their strategies and we try to pick the highest conviction ideas that they have and run this in an active approach.”Active Flexibility Amid Volatility
Active managers have the autonomy to adjust the portfolio to suit current market conditions. That said, according to Treacy, the bottom-up stock picking strategy is essential as “the index-level overall performance isn’t everything.” In volatile international landscapes, Fidelity’s active managers retain the flexibility to realize gains on overvalued names while also rotating capital into underappreciated growth opportunities before the broader market catches on. By leveraging the collective wisdom of Fidelity’s portfolio managers, vehicles like FFEM aim to give investors a smoother ride and access to the high-conviction ideas within the EM space.Enjoyed this article? Sign up for our newsletter to receive regular insights and stay connected.