For many years now, UK investors have been switching into US or global index tracking funds, and for many years, this was the right thing to do. 2025 seems to have changed all that. Finally, we are seeing signs of life in long-neglected parts of the market. If money starts to flow the other way, this trend of underperformance by US and global trackers could persist for some time. The vast sums involved mean that even small switches out of US assets can drive substantial reratings of smaller markets.

The big pullback and subsequent recovery in US markets means that the S&P500 is now up 10.4% over the year to date (in US dollars to close of play on Wednesday 27 August). A weaker US dollar pushes the return for UK investors down to just 3.1%. Such is the dominance of US markets on global indices – the US was 65% of the MSCI All Countries World Index, the MSCI ACWI, at the end of July 2025 – that despite some very decent returns in other parts of the world, the sterling return on the MSCI ACWI has been just 6.1%.

Very few markets have underperformed the US over 2025. Most high profile of these is India (down 8.1%), which like the USA was looking fairly expensive.

By contrast, Europe ex-UK (+16.1%) and UK large cap (+16.4%) have done well, and a decent bounce in the Chinese market (+20.0%) has dragged up the returns of emerging market (+11.1%) and Asian indices. 

Frontier favourite

Some of the best returns have been in frontier markets, with the MSCI Frontier Markets Index up 25.4%. Unsurprisingly, BlackRock Frontiers (BRFI ) has been a beneficiary of this. Its share price has finally surpassed the peak it achieved in January 2018 and its discount has been narrowing so that its shares are within touching distance of trading at a premium, as they did for much of the 2010s.

Normally, I would be cautious about any trust that has been performing as well as BRFI, which has more than doubled over the past five years, but it feels to me as though – unless we have a drastic change of policy in the US – BRFI might have a long way to run yet. Although, I will concede that it might still be a bumpy ride.

BRFI covers more than just frontier markets. The benchmark was broadened in 2018 to include all countries with the exception of developed markets and the eight largest countries in the EM index at the time: Brazil, China, India, Korea, Mexico, Russia, South Africa, and Taiwan.

I have long been in awe of the managers’ – Sam Vecht and Emily Fletcher – ability to keep track of such a wide remit. That they do a good job has never really been in doubt. The trust can boast returns since launch in December 2010 that are almost double those of its benchmark.

These markets are, by their nature, neglected by most investors. That makes it more likely that stocks will be mispriced, and that good active managers can add value. It also means that these stocks are usually fairly cheap. At the end of July, the price/earnings ratio on the MSCI Frontier Markets Index was 11.8x. That compares to 15.5x on the MSCI Emerging Markets Index and 22.4x on MSCI ACWI.

The universe also contains a fair few high yielding stocks. This enables BRFI to generate an attractive dividend yield, about 4.2% currently.

Emerging outperformance

When it comes to the UK, investors looking for alternatives to the US seem to be directing money towards more liquid large caps in the first instance. Somewhat similarly, emerging markets seem to be beating more uncharted frontier markets. Trusts such as Templeton Emerging (TEM ), Fidelity Emerging (FEML ), Ashoka Whiteoak Emerging (AWEM ), and JPMorgan Global Emerging Markets Income (JEMI ) have been outperforming BRFI. That is one reason why I feel I may have not missed the boat on BRFI entirely.

I already hold JEMI and have more exposure to emerging markets through VinaCapital Vietnam Opportunity (VOF ), Ashoka India Equity (AIE ), and Fidelity China Special Situations (FCSS ). As you may have gathered, I am thinking of also adding some BRFI to my portfolio in the fairly near future. However, I think we may see some volatility in markets over the next couple of months, so maybe not just yet.

James Carthew is head of investment company research at QuotedData.

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