Emerging market equity funds have demonstrated strong performance in 2025, attracting investors seeking diversification away from overvalued U.S. assets. This trend is supported by attractive valuations in emerging markets, which continue to trade at a discount compared to U.S. equities and other global regions, according to Goldman Sachs. The improved returns are also attributed to years of under-positioning by investors and an easing of economic pressures following U.S. President Donald Trump's decision to pause tariffs. Franklin Templeton Emerging Markets has highlighted that despite ongoing trade tensions, emerging market equities remain undervalued and present a compelling investment case. Additionally, international mutual funds have experienced rallies of up to 12% within a month, reflecting broader investor interest in global diversification strategies amid current economic conditions.