Investing in emerging markets

Just over a year ago, we took a big step to increase our global equity exposure to emerging markets – regions that are driving much of the world’s growth. At first, we used derivatives to track the MSCI Emerging Markets Index, giving us broad exposure to these fast-growing economies.

We’d always intended to shift gears to active management of this asset class. And, in late 2025, once we completed a search and selection process, we appointed Lazard Asset Management (Lazard) and RBC BlueBay (RBC) to actively manage these funds. This move reflects our commitment to a more hands-on approach, aiming to capture opportunities and deliver stronger long-term results.

Emerging markets are economies in transition – typically moving from low- or middle-income status toward becoming more industrialised and developed. As they transition, emerging market countries often experience rapid economic growth, modernisation, and rising living standards.

Some of the largest and well-known emerging markets include Brazil, Russia, India, and China, or the BRIC economies as they are often referred to. These four countries account for more than one-third of global GDP.

We believe that investing in emerging markets offers strong long-term growth potential, driven by several broad factors. These include favourable demographics, urbanisation and the upside potential for technological advancements. Emerging market countries are larger, making up more than 80% of the world’s population, and their populations also tend to be younger, which can be favourable for long-term economic growth.

These economies are expanding their share of global GDP and are growing at a faster pace than developed markets. According to the International Monetary Fund (IMF), emerging market economies are projected to grow by 3.7% in 2025, compared to just 1.4% for advanced economies. Furthermore, IMF data shows that GDP per capita in emerging markets has grown from US$4,790 to $6,800 over the past 10 years.

This investment aligns with our broader strategy of portfolio diversification. Emerging markets offer unique opportunities due to their structural differences from developed economies, and their performance tends to be less correlated with developed market equities. Other recent steps in this direction include replacing MFS with BlackRock and appointing PIMCO to manage our enhanced equity strategy.

Our Investment Partnerships team conducted a rigorous selection process. Starting with 20 managers, we narrowed the list to five through quantitative analysis, followed by in-depth due diligence across five key criteria:

• Business and parent company
• Investment philosophy and process, performance and risk management
• People
• Responsible investment
• Operational excellence.

A key part of the process involved visiting each manager in their respective offshore offices. These visits provided valuable insight into their unique company cultures and allowed us to connect with a broader range of individuals involved in the investment process – extending well beyond just the portfolio managers.

After the comprehensive selection process, we chose Lazard and RBC for their complementary investment styles – quantitative and fundamental, respectively – and their consistently strong performance track records. Both managers also have a strong responsible investment approach, which we look for across all our appointed external managers and investment partners.  

To ensure continuity and maintain strategic flexibility across our investment partnerships, we have also identified additional bench managers to support the appointment of RBC and Lazard.

Your overall international equities exposure remains unchanged, but for funds with emerging market exposure, this allocation is now being actively managed by Lazard and RBC. This move reinforces two of our core investment beliefs:

• Investment style: There are many ways to outperform markets. Increasing our emerging market exposure is one such approach.
• Investment partnerships: We believe in partnering with managers who bring deep expertise and a proven ability to deliver long-term results.