Templeton Emerging Markets (TEM) has released its annual results for the 12 months to 31 March 2025, posting an NAV total return of 8.8%, comfortably ahead of the MSCI Emerging Markets Index, which returned 5.8% over the same period. The trust’s share price rose 13.3% on a total return basis, helping to narrow the discount to NAV from 15.4% to 12.4%. Chairman Angus Macpherson praised the investment managers for delivering “excellent” performance in what he described as a volatile and challenging environment for global equities.

A final dividend of 3.25p is being proposed which, on top of the 2.00p interim, brings that total dividend for the year to 5.25p per share, up 5% from the 5.00p paid in 2024.

Share buybacks deliver accretion to NAV

To support the share price and improve liquidity, TEM stepped up its share buyback activity, repurchasing around 90m shares during the year – equivalent to 8.1% of the shares in issue at the start of the period – and returning £149.2m to shareholders. As all repurchases were made at a discount to NAV, they added approximately 1.16% to the NAV per share for remaining investors.

While the board acknowledges that buybacks are unlikely to resolve the discount in isolation, it views them as a useful tool for supporting liquidity, enhancing earnings per share, and signalling the board’s ongoing commitment to shareholder value. Looking forward, TEM’s board is seeking shareholder approval to renew its buyback authority (up to 14.99% of issued share capital) and intends to repurchase a further £100m–£200m of shares over the next 12–24 months, subject to market conditions.

Performance drivers

The managers’ bottom-up approach yielded strong stock selection gains in sectors such as consumer discretionary and financials. Off-benchmark holding Prosus, as well as core positions in Alibaba, ICICI Bank, and Genpact, were standout contributors. Prosus tracked gains in Tencent (also held), while Alibaba benefitted from market optimism around AI, e-commerce strategy, and share buybacks.

Meanwhile, performance was dragged down by holdings in Samsung SDI, LG Corp, and Samsung Electronics, all of which were impacted by weakness in South Korean equities amid concerns over memory chip oversupply, governance issues, and investor uncertainty following political developments.

The trust remains overweight in Taiwan (notably via TSMC) and India (led by ICICI Bank and HDFC Bank), while maintaining underweight positions in the Middle East and South Korea. The managers continue to favour companies with long-term earnings power, strong cash generation, and exposure to structural growth trends such as AI, digitalisation, and healthcare.

Outlook and geopolitical backdrop

TEM’s results come against a backdrop of increasing geopolitical and macroeconomic uncertainty. Shortly after the year-end, US President Trump announced wide-ranging tariffs under the banner of “Liberation Day,” reigniting concerns about global trade disruption. The board and managers acknowledge the potential impact on sentiment, particularly for China, but argue that emerging markets remain structurally strong, with many countries – such as India, Brazil, and Mexico – better insulated from US trade policy than in previous cycles.

The managers maintain a constructive view on emerging market equities, supported by lower US interest rates, a weaker dollar, and supportive valuations. Latin America is favoured for its relative immunity to US tariffs, while AI-driven demand continues to support prospects in Taiwan and China, despite policy risks.

Structural enhancements and future plans

The current year also saw TEM deliver on its previously announced strategic initiatives aimed at improving shareholder returns and addressing the persistent discount:

• A proposed five-year performance-linked tender offer for up to 25% of shares if the trust underperforms its benchmark (measured to March 2029);
• A phased reduction in management fees, with ongoing charges ratio falling to 0.95% from 0.97%;
• A commitment to maintain or increase the annual dividend, delivering both income and growth;
• Continued focus on governance and investor engagement, including enhanced communication and research initiatives.

The board has commissioned independent investor research and held extensive shareholder meetings over the past year, noting broad support for the current strategy and recognition of recent performance improvements. Feedback suggested moderate gearing and sustained buybacks are favoured, along with greater marketing to raise the profile of the trust.

[QD comment MR: This is a decent set of results from TEM, with the trust outperforming its benchmark and discount narrowing amplifying this so that TEM delivered a double-digit share price return. The trust’s exposure to long-term structural growth themes, such as AI and digitalisation, seems to be paying off, particularly with large holdings like TSMC and Alibaba showing signs of renewed momentum.

The narrowing of the discount likely reflects improved underlying performance and the board’s efforts, particularly the ramp up in buy back activity, to narrow the discount. The £149m in buybacks over the year is significant and highlights the benefit of scale in the investment companies space – TEM can readily undertake this level of buybacks without unduly impacting its portfolio or the risk that it could become subscale. Importantly, the board’s commitment to continuing the programme, alongside fee reductions and a performance-linked tender, should make TEM’s proposition more attractive to investors.]