Emerging markets delivered a relatively resilient start to 2025. The Morningstar EM TME Index declined by just 2 percent in euro terms, compared to a drop of more than 5 percent for the Morningstar Global TME Index. However, the volatility stirred by U.S. President Donald Trump, first by imposing import tariffs and then partially reversing them, took a toll.
Asian equity markets were especially affected. Markets in Vietnam, Taiwan, Singapore, and China were among the hardest hit between April 2 and April 9. The result: emerging markets’ initial outperformance has now reversed into underperformance relative to developed markets.
Against this backdrop, we examine two actively managed emerging markets equity funds in which Morningstar analysts hold strong conviction, yet which represent opposing ends of the investment style spectrum. Both Pzena Emerging Markets Focused Value and Stewart Investors Global Emerging Markets Leaders earn an Above Average rating on Morningstar’s People Pillar, while their Process Pillar ratings diverge—Above Average for Pzena’s value-driven strategy and High for Stewart’s quality-growth approach.
People
Both strategies are led by experienced, cohesive teams. Pzena’s fund is managed by Caroline Cai, Allison Fisch, Rakesh Bordia, and Akhil Subramanian. Cai and Fisch joined the firm in 2004 and 2001, respectively, and took on broader leadership roles in 2023 alongside managing this fund. Pzena’s 30-person New York-based team operates with a global mindset. Analysts rotate through sectors every three to five years to encourage fresh thinking, and the team is notably stable—many members have more than 15 years of tenure and are firm partners.
Stewart Investors Global Emerging Markets Leaders is managed by Jack Nelson, who has 12 years less experience, but works closely with seasoned co-manager David Gait and the less experienced Sujaya Desai. Their team of 11 takes a highly collaborative approach, encouraging idea-sharing and open critique. Despite some recent changes, the team averages 15 years of investment experience and 11 years with the firm.
Process
Though both strategies rely on in-depth, bottom-up fundamental research, their investment styles differ significantly.
Pzena employs a deep-value strategy. The team screens a 1,500-stock universe of large-cap emerging markets for companies trading in the lowest 20 percent based on price-to-normalized earnings. It conducts rigorous fundamental analysis and interviews management to assess turnaround potential. Buy and sell decisions require unanimous team approval, contributing to a low turnover portfolio.
Stewart Investors, in contrast, emphasizes quality and sustainability. The team looks for high-quality businesses with sustainable growth prospects, strong leadership, and solid financials. Like Pzena, the strategy includes frequent meetings with company management. A key differentiator is the focus on sustainable development, leading to minimal exposure to energy and materials.
Portfolio
Pzena’s portfolio holds between 40 and 80 undervalued stocks. While not benchmark-driven, no country or sector can exceed 20 percent of the portfolio—or 150 percent of its weight in the index. The fund typically leans into cyclical sectors, such as consumer discretionary and financials. As of February 2025, however, defensive consumer staples represented the largest overweight relative to the benchmark.
Stewart Investors maintains a more concentrated portfolio of 35 to 50 quality-growth names. As of February 2025, the fund had an approximately 40 percent allocation to technology, making it the largest overweight. Industrials were also overweight relative to the benchmark. In Morningstar’s Style Box, Pzena lands firmly in the value quadrant, while Stewart Investors is squarely in the growth space.
Performance
Reflecting their contrasting styles, the two funds have delivered markedly different performance trajectories.
Pzena Emerging Markets Focused Value has consistently outpaced both the category average and the Morningstar EM TME benchmark over various time periods. Value stocks have enjoyed a tailwind in recent years, but Pzena’s outperformance relative to value benchmarks also suggests strong stock selection. That said, returns have been uneven at times, with notable underperformance in 2019 and 2020.
In contrast, Stewart Investors’ quality bias has led to a lower risk profile, but its growth tilt has fallen out of favor in recent years. The resulting underperformance has significantly impacted the strategy’s long-term return profile, despite strong fundamentals.
Ronald van Genderen is a Senior Manager Research Analyst at Morningstar. Morningstar conducts qualitative and quantitative analysis of investment funds and contributes to the Investment Officer expert panel.