Northern Active M Emerging Markets Equity Fund: Navigating Volatility with a Multi-Manager Edge

The first quarter of 2025 has underscored the inherent volatility of emerging markets, where geopolitical tensions, shifting economic policies, and sector-specific headwinds create both opportunities and risks. Against this backdrop, the Northern Active M Emerging Markets Equity Fund (NAMEMEQX) has demonstrated the resilience of its multi-manager strategy, even amid a temporary underperformance relative to the MSCI Emerging Markets Index. This article explores how the fund's factor-neutral diversification, rigorous qualitative due diligence, and frontier market allocations position it as a compelling choice for investors seeking to capitalize on risk-adjusted alpha in a challenging environment.

### The Multi-Manager Advantage: Diversification Beyond Borders
The fund's structure, which blends strategies from sub-advisers like Fidelity Institutional Asset Management (FIAM LLC), Axiom, and Westwood, is its cornerstone. By pooling these managers' complementary approaches—some emphasizing value stocks, others growth, and others corporate governance—the fund avoids overexposure to any single style or geographic bet. This factor-neutral diversification is critical in a quarter where value outperformed growth by a wide margin and large caps surged ahead of small caps.

While the fund lagged the MSCI index by 104 basis points in Q1, its underweight in China (a top performer) was offset by gains in frontier markets like Colombia (+33.27%) and Poland (+31.27%). These regions, often overlooked by passive funds, contributed to the fund's ability to navigate sector-specific headwinds, such as India's weak corporate earnings and South Korea's underwhelming tech sector performance.



### Factor-Neutral Strategy: Avoiding Style Bias Traps
The fund's commitment to maintaining neutrality in factors like size, value, and momentum is a deliberate hedge against market cycles. In Q1, this approach insulated it from the pitfalls of overexposure to growth stocks, which struggled as investors rotated into value-oriented sectors. For instance, Fidelity's overweight in Poland and China—regions where value stocks dominated—added to the fund's relative resilience, even as its underweight in tech-heavy Taiwan limited losses there.

This neutrality is particularly relevant as macroeconomic uncertainties persist. With central banks in emerging markets grappling with inflation and debt pressures, a style-agnostic strategy reduces the risk of being caught in a losing rotation. The fund's 10-year annualized return of 7.88% versus the index's 7.63% underscores the long-term efficacy of this approach.

### Qualitative Due Diligence: Mitigating Geopolitical Risks
The fund's qualitative process—screening sub-advisers for governance rigor, risk management, and alignment with its objectives—proved its worth in Q1. While Axiom and Westwood underperformed due to China underweights (Axiom citing weakening fundamentals, Westwood governance concerns), Fidelity's China and Poland allocations thrived. This demonstrates how the fund's layered due diligence identifies managers with nuanced, forward-looking insights.

In frontier markets, the strategy's focus on countries like Colombia and Poland—both benefiting from structural reforms and undervalued assets—highlighted the value of qualitative research in identifying overlooked opportunities. Such regions, often excluded from broader indices, offer asymmetric upside when fundamentals improve, as they did in Q1.

### Frontier Markets: The Untapped Frontier of Alpha
Frontier markets, which the fund targets through its MSCI Frontier Markets Index exposure, represent a key differentiator. While traditional emerging markets like India and South Korea faced headwinds, frontier regions like the Czech Republic (+28.66%) and Colombia surged on commodity price stability, political stability, and undervalued equities. These markets' smaller weightings in broader indices mean they are less crowded and more susceptible to catalyst-driven gains—a sweet spot for active managers.



### Risks and the Case for Long-Term Commitment
The fund's Q1 underperformance underscores inherent risks in emerging markets: China's abrupt shifts in policy, India's economic slowdown, and sector-specific declines. However, these challenges are mitigated by the fund's multi-manager structure, which balances sub-advisers' varying exposures. Additionally, its 1.12% net expense ratio (expiring July 2025) remains competitive for an actively managed fund, though investors should monitor fee changes post-reimbursement.

For investors, the fund's appeal lies in its ability to deliver risk-adjusted alpha over cycles. Its focus on frontier markets and factor-neutral strategies positions it to rebound when volatility subsides, while its qualitative processes reduce exposure to governance or valuation traps.

### Investment Thesis: Capitalize on Resilience
Despite Q1's underperformance, the Northern Active M Emerging Markets Equity Fund remains a compelling option for investors willing to look beyond short-term noise. Its multi-manager diversification, factor-neutral framework, and frontier market allocations align with the following opportunities:
- Frontier Market Upside: Regions like Colombia and Poland offer asymmetric returns as their economies stabilize and attract capital.
- Style Flexibility: The absence of factor bias ensures adaptability to future value/growth rotations.
- Geopolitical Insurance: Qualitative due diligence screens out sub-advisers exposed to governance risks, a critical shield in volatile markets.

Investors should consider dollar-cost averaging into the fund, particularly as geopolitical risks (e.g., China-U.S. trade tensions) and Fed policy uncertainty persist. Pairing it with a passive core of broad emerging market ETFs (e.g., iShares MSCI Emerging Markets ETF) could further balance exposure.

### Final Take
The Northern Active M Emerging Markets Equity Fund's Q1 results highlight both the challenges and the strategic strengths of active management in emerging markets. While short-term underperformance is inevitable in such dynamic environments, the fund's multi-manager diversification, factor neutrality, and frontier market focus position it to outperform over the medium term. For investors seeking to navigate volatility while capturing alpha, this fund remains a prudent choice—if paired with patience and a long-term perspective.