Redwheel Next Generation Emerging Markets Equities I GBP Acc
Why is this fund on our radar?
Redwheel Next Generation Emerging Markets offers access to parts of emerging and frontier markets often overlooked by traditional emerging markets (‘EM’) strategies. Rather than concentrating on the big five – China, India, Taiwan, Brazil and South Korea which make up around 80% of the EM universe – this fund looks beyond them, targeting smaller, under-researched economies (classified as either EM or frontier markets) where reform, improving governance and domestic demand are increasingly driving growth. These markets tend to be less efficient, giving skilled active managers greater scope to add value.
Managed by long-standing specialists James Johnstone and Victor Erch, the fund holds a concentrated portfolio of high-conviction ideas, often in early recovery phases or with long-term growth potential not yet recognised. The managers look for strong fundamentals, improving profitability and sensible valuations, aiming to capture attractive upside without taking excessive risk. This approach aims to uncover resilient businesses capable of compounding returns over time.
What has earned the fund a place on our list is the strength and consistency of its stock selection. This is reflected in strong alpha generation, meaning outperformance of both its index and peers since launch, and an above-average batting average, meaning a greater proportion of the managers’ ideas have worked. Although investing in frontier and smaller emerging markets can lead to sharper swings in performance, the fund’s track record shows that it has tended to hold up well when markets fall, delivering returns without taking on undue risk in weaker periods. For investors seeking true diversification beyond both the largest emerging markets and broader developed market strategies, we think this could act as a good complement to a global portfolio.
Skip to Our VerdictPerformance
Since inception (to 31/10/2025), the fund has delivered annualised returns of around 17.5%, well ahead of the MSCI Frontier Markets Index’s 8.0% and the IA Global Emerging Markets sector average of 5.7%. Frontier markets, typically even smaller, less developed economies than those classed as emerging, tend to offer faster growth potential but also higher volatility, making them the most relevant benchmark for this strategy. And because the fund also invests in smaller emerging markets, we have included the MSCI EM ETF as an additional comparison point, which it has likewise outpaced.
We think this strong long-term record reflects the managers’ ability to compound returns through disciplined stock selection and a high-conviction, benchmark-agnostic approach. Although not a formal objective, it has generated these returns whilst limiting meaningful losses indicting to us that performance has not come at the cost of excessive risk, even if short-term ups and downs have been slightly higher than peers. Its pattern of outperformance has also been consistent over the past five years, as shown below.
five-year performance
Past performance is not a reliable indicator of future results
Looking at calendar-year returns provides a useful lens into how the fund behaves in different market conditions. In both 2021 and particularly in 2022, it demonstrated striking resilience, rising 16% in 2022 despite the index falling 17% – a performance gap of around 33 percentage points. This reflected exposure to parts of the Middle East and Africa, where stronger fiscal discipline and more effective monetary policy helped contain inflation more successfully than in many developed markets. They also benefitted from exposure to markets supported by meaningful structural reforms, such as balanced budgets, privatisation, trade liberalisation and pro-foreign capital policies, which helped reduce capital costs and stimulate investment in key economies like Egypt, Kenya, Nigeria, Pakistan and Turkey.
In 2025, the fund continued to benefit from its differentiated positioning, with allocations to South Africa, Vietnam and parts of Emerging Europe contributing strongly. However, exposure to Indonesia and the Philippines, where policy uncertainty and sector-specific headwinds, weighed on relative performance. It is also worth noting that the fund’s lack of exposure to larger markets, such as India or China, means it may lag broader EM strategies during periods when those markets rally strongly. Currency moves, geopolitical uncertainty and trade policy shifts – particularly around tariffs – have also challenged returns at times.
However, diversification across multiple smaller economies, each with their own distinct growth drivers, has often helped performance remain resilient. When one region struggles, another can compensate. This mix, combined with a focussed approach and disciplined stock picking, has helped the fund deliver strong long-term results whilst keeping risk at sensible levels.
Portfolio
The managers focus on opportunities across lesser-covered emerging and frontier markets, prioritising companies with long growth runways, improving fundamentals and recovery potential. Whilst targeting structural growth, the managers are always careful not to overpay when selecting their investments. This often leads to meaningful allocations in reform-driven markets experiencing macroeconomic stabilisation and financial system expansion, such as South Africa, Vietnam and Mexico.
Currently South Africa is the fund’s largest regional exposure. Falling inflation, lower rates and a shift to a more pro-business coalition have improved the outlook for businesses. Further, the managers believe they can buy those businesses at reasonable valuations and also see further potential from the South African currency gaining strength. South Africa’s commodity exposure, particularly precious metals have added to the appeal. Importantly, more people and businesses are now using formal financial services, which is boosting areas like telecoms and banking. Greater use of mobile payments, alongside rising deposits and lending, points to a multi-year trend of improving financial access across the economy.
The second largest exposure is Vietnam which offers a similar mix of structural drivers. Companies shifting parts of their supply chains to the region, alongside strong foreign investment and wide-ranging economic reforms, are helping drive company profits. Coupled with a youthful, digitally engaged population, the economy provides fertile ground for consumer spending and digital financial adoption, a key focus for the managers. Mexico is also benefitting from similar trends, supported by supply chains moving closer to the US, steady growth in lending at home, the expansion of private credit markets, and relatively low household debt levels.
regional allocation
Source: TM Redwheel
Across these markets, financials remain a core theme. These economies share underdeveloped credit systems and growing demand for savings, insurance and investment products. The managers view this not just as a short-term opportunity but as a long-term structural theme, aligned with their focus on quality, governance and sensible valuation. Financials now account for over 30% of the portfolio.
sector allocation
Our Verdict
Emerging and frontier markets are often seen as volatile, yet for investors prepared to look beyond macro headlines, they offer domestic-led growth, diversification and rerating potential from historically low valuations. Company earnings have rebounded strongly since the pandemic, supported by improving profitability and stable currencies, alongside growth being increasingly driven by their own local dynamics, rather than the global or US-led cycles that have dominated in the past.
The Redwheel Next Generation EM Fund is well-placed to capture these shifts. With no current passive equivalent, its differentiated approach targets smaller, reform-focussed markets, typically with young populations, where growth is increasingly fuelled by domestic consumption, infrastructure investment, financial inclusion and where it is becoming easier for companies to raise money to fund the growth of their business. Its concentrated, high-conviction portfolio behaves differently to broader emerging market strategies, offering investors genuine diversification.
This approach naturally carries risks. Periods when certain parts of the portfolio don’t perform as expected, along with currency swings, geopolitical uncertainty and changes in trade policy, especially new tariffs, can all contribute to short-term volatility. However, these risks can also create opportunity, as demonstrated when trade diversion under the first Trump-era tariffs supported alternative manufacturing hubs. More broadly, structural strengths such as expanding labour markets, rising productivity and maturing financial ecosystems provide a strong platform for sustainable, long-term growth.
For investors seeking exposure to the evolving, domestically driven growth story within emerging and frontier markets, without concentrating risk in index-heavy giants, this fund offers high-conviction access to a differentiated set of opportunities. We think it might serve as a strong complement to both developed market and broader emerging market strategies.
Key Risks
- Political risks are high in many of the universe’s key countries
- A highly active approach can lead to underperformance when positions don’t work
- Charges are quite high
