Emerging market exchange traded funds have been attracting greater investment interest as a greater number of asset managers and financial advisors express improved sentiment over developing economies.
According to a recent Emerging Markets Investor Sentiment Survey conducted by Emerging Global Advisors, the quarterly poll of asset managers and financial advisors are showing an increased interest in allocating toward the emerging markets.
Related: Tap into Global Growth with Emerging Market ETFs
Over the next 12 months, 47% of respondents had a “positive” outlook for emerging market equities, followed by 43% “neutral.” The results also showed a increase in the number of “positive” views when “neutral” was the most common answer in the first quarter of 2016.
Looking ahead, 46% of respondents expect to raise their emerging equity exposure while 49% will keep emerging market exposure as is. The majority of respondents, 78%, indicated that their current emerging market exposure is about the same or higher year-over-year while only 22% say it is lower.
About a third of the money managers have either 5% to 10% or 1% to 5% allocated to emerging markets.
Additionally, a number of respondents evinced their preference for smart-beta emerging market strategies, pointing to alpha generation and accessing specialized exposure as the most important attributes of smart-beta ETF strategies. Almost half, 49%, of investors have replaced or want to replace an active manager with a smart-beta ETF.
[related_stories]“The survey empirically reveals growing optimism among EM investors and a willingness to utilize strategic [smart]beta portfolios to capitalize on EM’s key growth drivers,” Marc Zeitoun, Chief Product and Marketing Officer at Emerging Global Advisors, said in a press release. “These results validate what we had described in our Strategic Beta In Emerging Markets thought piece, published earlier this year. By implementing a rules-based process that reflects the systemization of alpha drivers, strategic beta strategies can cost-efficiently add alpha.”
Related: Investors Jump on Emerging Market ETFs in Search for Yield
For instance, EGShares EM Quality Dividend ETF (NYSEArca: HILO), which provides a play on dividend-paying companies from developing markets, has outperformed in 2016, increasing 17.8% year-to-date, compared to the benchmark MSCI Emerging Market Index’s 11.8% gain.
HILO follows an equal-weighted index that includes about 50 emerging market companies with a higher dividend yield than the average dividend yield in the EGAI developing Markets universe. The fund shows a 3.03% 12-month yield and has a 0.85% expense ratio.
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