Fund Objective

To achieve long-term capital growth for investors.

View on Past Performance

The BlackRock Emerging Markets Fund underperformed its benchmark over the third quarter of 2008, declining by -23.9% versus the MSCI Emerging Markets index, which fell by -18.3%. It should be noted, however, that the Fund's performance was negatively impacted by the timing differential between pricing of the Fund and its benchmark. Latin America, with its heavy allocation of commodity-price sensitive names, was the largest detractor over the quarter.Shares in steel maker Ternium fell 58%, while pipe manufacturer Tenaris lost almost half its value. Materials names in Brazil and Chile also dragged on relative performance. However, the overweight position in pan-regional mobile operator America Movil contributed positively. Elsewhere, newsflow in emerging Europe was dominated by the conflict between Russia and Georgia and its after-effects.The Russian market, already under pressure from easing commodity prices, fell sharply as investors assessed the political risk. While stock selection was broadly positive, this was not enough to offset the effect of the overweight position. The Fund benefited from holdings in the Turkish financial sector. In contrast, China was the largest positive contributor to relative performance, primarily through very strong stock selection.Utility company Beijing Enterprises performed well, as did China Life Insurance. During August we participated in the IPO of China South Locomotive, which finished the quarter up almost 13%. Elsewhere in north Asia, stock selection in Taiwan was positive, although the underweight position in South Korea hurt relative performance. The majority of Fund activity over the quarter took place in Asia.We significantly reduced our South Korean weight, redeploying cash from financials and consumer discretionary stocks into the more defensive consumer staples sector. Elsewhere in Asia, we increased exposure in China and Taiwan, but remain slightly underweight both markets. At a sector level, we reduced our weighting in materials, particularly holdings in the steel industry.

Future Expectations

The performance of emerging market equities is likely to be highly correlated with global developments in coming months. The long-term growth story for the asset class remains broadly intact. However, until we see signs of stability in developed markets, fear seems likely to dominate the investor psyche.

Fund Details