Emerging Markets Investing: The Case for Passive Funds

The case for passive investing seems the strongest in developed markets, where information is widely accessible and securities are accurately priced

Monika Dutt 17 January, 2017 | 1:17PM
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In 2016, investors dipped their toe back into emerging-markets equity funds. The optimism in investor sentiment was sparked by a more positive global outlook on the Chinese economy and a stabilisation in commodity prices and emerging-markets currencies.

Over the past decade, emerging-markets funds have moved from being a mere satellite holding in many investors’ portfolios to a core allocation. Interestingly, and perhaps counterintuitively, investors are increasingly adopting a passive approach toward emerging-markets funds. Worldwide, assets in passively-managed emerging-markets equity funds have grown more than six times over the period, whereas assets have only doubled for their actively-managed peers.

Market Accessibility and Efficiency

At first glance, the case for passive investing seems the strongest in developed markets, where information is widely accessible and securities are accurately priced. In the US, this is supported by the fact that over its history, the high-profile S&P 500 index has proved a tough hurdle for many US large-cap managers to clear. Meanwhile, in emerging markets, which are oft-cited as among the least efficient, it may be easier to obtain an informational edge or identify mispriced securities.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Comgest Growth Emerging Mkts USD Acc40.63 USD-0.28Rating
Schroder ISF Em Mkts A Acc USD20.70 USD0.36Rating
Vanguard Em Mkts Stk Idx £ Acc270.66 GBP0.36Rating

About Author

Monika Dutt  is a Passive Strategies Research Analyst for Morningstar Europe

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