PGIM India Emerging Market Equities Fund of Funds: International Diversification With Emerging Markets

Market Context

Indian equities have shown strong resilience amidst global trade uncertainties and Moody's downgrade of US Sovereign rating. The Sensex is back above the psychologically important 80,000 level, while the Nifty has come up above 24,000 levels. However, there is nervousness in markets due to geopolitical uncertainties. In times of economic uncertainties, you should focus on quality and asset allocation. In this article we will look at the PGIM India Emerging Market Equity Fund which is one such investment opportunity that could be suited to the current market scenario.

How international equities can add richer diversification to your portfolio

Investing in multiple countries allows investors to reduce their reliance on domestic markets. Economic conditions can vary significantly from one region to another; therefore, when one market experiences a downturn, others may thrive. For instance, during economic slowdowns in Europe, markets in Asia might perform well, providing a buffer against losses. There is low correlation of returns of different markets. Investing in global equities can diversify risk considerably and bring stability to your portfolio. The chart below shows the returns of MSCI US, MSCI China and MSCI India Index over the last 15 years. You can see that there is low correlation between returns of different markets. Adding international equities to your portfolio will provide richer diversification and stability when Indian equities underperform.

Source: MSCI, as on 31^st May 2025

Why is investment in emerging markets a good proposition?

The emerging markets represent economies that are contributing 60% to the global GDP. The general characteristics of Emerging markets make them good investment opportunities. (See graphic)

Source: PGIM India MF

Investment in emerging markets has exciting opportunities for improved diversification in investments, while enjoying reduced volatility due to the following factors:

Source: PGIM India MF

1. There is low correlation of returns between India and other emerging markets (see the chart below). You can see that emerging markets outperformed India in 7 out of last 15 years (approximately 50% of the time) and vice versa. Adding emerging market equities to your investment portfolio can improve performance consistency and stability across investment cycles.
   
   

   

   Source: MSCI, as on 31^st May 2025



2. Dependency Ratio (% ratio of non-working population to the working age population) E7 (Top 7 emerging markets) is less than half of G7 (Top 7 developed markets). People between 16-64 years, the working age bracket, form the chunk of the investor pool. Higher dependency ratio is generally associated with lower savings rate.
   
   

   

   Source: PGIM India MF, United nations population division.



3. Emerging economies are growing at a fast pace and now contribute 58% to the Global GDP. (Source: IMF World Economic Outlook)


4. Seven largest emerging economies (E7) are now the same size as the seven largest developed economies (G7). (Source IMF).


5. Fortune 500 list of top corporates now has 29% companies from the emerging economies highlighting the scale and global recognition. (Source: Fortune 500).


6. Younger population has led to much higher consumption growth in emerging economies:
   
   

   

   Source: PGIM India MF



7. Emerging markets provides varied exposure to different sectors relative to Indian (e.g. higher exposures to sectors like IT, communications etc). Therefore, investment in emerging markets gives another layer of diversification to the portfolio to help ride through volatility.
   
   

   

   Source: MSCI; Data as on 31 May 2025

About PGIM India Emerging Market Equity Fund

The PGIM India Emerging Market Equity Fund is a fund of funds scheme investing in PGIM Jennison Emerging Markets Equity Fund, an international fund investing in companies tied to emerging market countries.

The PGIM Jennison Emerging market equity fund: The underlying fund

PGIM Jennison Emerging Markets Equity Fund (the underlying fund) has the flexibility to invest across the entire emerging market equity landscape following an approach that is unconstrained by benchmark, region or market cap. The Fund aims to achieve a long-term growth of capital by investing in companies in the early stages of acceleration in their growth.

Investment Strategy of PGIM Jenison Emerging Market Equity fund

Through the bottom-up selection process, the PGIM Jennison emerging market equity fund aims for a portfolio of 35-45 stocks, which can result in a high degree of active share and alpha potential. The fund seeks out the strongest investment opportunities among the emerging market trends with focus on:

• Innovative and disruptive businesses, driving structural shifts in their industries.


• Businesses that are well-positioned to benefit from secular demand trends driven by superior product offerings.


• Businesses that have defensible business models with significant competitive barriers to entry.

The fund seeks to benefit from trends that are shaping the world and invests in industries like biotech and healthcare, multi-line retail, internet and direct marketing retail, semiconductor and related equipment, interactive media and services, luxury goods, textiles and apparels. The investment strategy is to conduct focused research on 100 companies out of the 2000 odd global universe to create a portfolio of its investment. (see graphic).

Source: PGIM India MF

Portfolio positioning of PGIM Jennison Emerging Market Equity Fund

Source: PGIM India MF (data as on 31^st March 2025)

Who should invest in the PGIM India Emerging Markets Equity Fund?

The fund may be suitable for investors who wish:

• To improve the diversification and reduce the portfolio volatility.


• To participate in the long-term trend of dollar appreciation against the Rupee.


• To participate in opportunities/themes that do not have adequate representation on the domestic bourses.

Contact your financial planner or mutual fund distributor to understand if the PGIM India Emerging Market fund is suited to your portfolio.