In the third quarter of 2025, the Institutional Class shares of the Macquarie Systematic Emerging Markets Equity Fund did not meet the performance of its designated benchmark, the MSCI Emerging Markets Index. Nonetheless, the benchmark itself demonstrated a robust 10.6% gain in US dollar terms, surpassing the performance of markets in developed economies. This positive trend was primarily fueled by a resurgence in investor confidence in Chinese equities and a significant increase in demand for technologies related to artificial intelligence.
The MSCI Emerging Markets Index, which serves as the fund's benchmark, showcased a strong return during the period. This upward movement was notably influenced by an uptick in investor enthusiasm for Chinese stocks, alongside a global surge in the demand for artificial intelligence technologies. These factors collectively contributed to the outperformance of emerging markets relative to their developed counterparts.
An analysis of sector-specific performance within the emerging markets revealed a mixed picture. Sectors such as materials and communication services recorded favorable results, outperforming the overall benchmark. Conversely, the energy and financial sectors experienced a downturn, trailing behind the benchmark's performance.
Looking ahead, the fund's strategy is centered on identifying high-quality companies characterized by robust financial health and consistent earnings, all at attractive valuations. This deliberate approach is expected to yield superior long-term returns, even in the face of ongoing market volatility. This focus on fundamentals aims to build resilience and capitalize on future growth opportunities within the dynamic emerging markets landscape.
Examining individual stock contributions, Bank of China, ICICI Bank, Infosys, and Tata Consultancy Services were among the primary negative contributors to the fund's relative performance. In contrast, Tencent and Hero Motocorp emerged as key positive contributors, bolstering the fund's relative returns. The fund's overweight positions in both China and the Information Technology sector were identified as significant factors impacting its third-quarter performance. Allocation decisions and the continued expansion of valuations driven by AI technologies contributed to the fund's underperformance compared to its benchmark.
Despite the short-term underperformance, the Macquarie Systematic Emerging Markets Equity Fund remains committed to its long-term investment philosophy. The fund management believes that by adhering to a strategy of investing in fundamentally strong companies with sustainable growth prospects and reasonable valuations, the fund is well-positioned for future success.