Actively managed emerging-market ETFs capture outsize share of flows
As investors scour the globe for undervalued stocks, one increasingly popular destination is actively managed exchange-traded funds that focus on emerging markets.
In the $348 billion market for ETFs that invest in developing-nation assets, the holdings of only about 5 percent of funds are actively managed — rather than pinned directly to an underlying index, according to data compiled by Bloomberg. But those actively managed funds have lured in more than a third of new cash that’s flowed into the asset class over the past year and more than 50 percent in the past month.
“If ever there was a compelling case for a more systematic approach to active management, it’s now,” said Donald Calcagni, chief investment officer of Mercer Advisors Investment Management and a buyer of active emerging-market ETFs. “Look at all the dislocations that are happening globally, at valuations, at how concentrated markets have become.”
The reasons for the shift toward emerging-market shares are plenty. Developing-nation stocks are trading at a discount of about 43 percent compared to their peers in the US, just shy of the biggest valuation gap on record, data compiled by Bloomberg show.
That chasm is a signal to some on Wall Street — including those with very few overseas investments — that developing nation stocks are undervalued, offering an ideal moment to load up on the assets.
Investors have been pouring cash into ETFs that wager on emerging assets in a bid to take advantage of lower fees and avoid the logistics of cross-border trading, reigniting the debate over whether active strategies can offer stronger returns versus passive ones beholden to a benchmark.
That momentum is reigniting the debate over whether investors can eke out
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