Disappointed with the Western markets, investors have foregone developed name brands and have been snatching up emerging market investments and exchange traded funds (ETFs) in bulk.
Emerging market ETFs have captured almost a third of assets in funds focused on those countries and ETFs have experienced some staggering percentage growth, writes Murray Coleman for IndexUniverse. Research has indicated that while index mutual funds are also on the rise, active mutual funds in the short-term are on the decline or have plateaued.
There is a growing shift away from active management toward passive ETFs in the emerging markets, remarks Alexander Redman For IndexUniverse. Since the beginning of 2008, the $365 billion invested globally in emerging market equities has gone from being 16% in ETFs to 30%.
Redman argues that retail investors have become disgruntled with high fees for actively managed portfolios on top of heavy losses over the past year, which have made people turn to emerging market ETFs as a way to invest in a cheap and liquid source of beta without having to study up on individual stocks.
It is noted that a majority of emerging market ETFs are aligned along regional or country geographies instead of sectors. Active funds tend to invest by country rather than by sectors and could increase intra-country investment correlations.