There are many misconceptions about emerging markets, with a key one being that EM investing brings significant risk to a portfolio.
The reality is that the volatility of emerging markets has evolved over the years, and adding emerging markets exposure to a portfolio can potentially act as a diversifier and reduce risks.
Cooper Abbott, CEO of Matthews Asia, told VettaFi that emerging markets have a different volatility regime than developed markets; however, that is where some of the benefits of the asset class come into play. The diversification aspect is key.
Looking at the risk of emerging markets from an academic perspective, while less volatile than it used to be, it’s still volatile, according to Abbott. For investors with longer time horizons, investing in an actively managed fund has the potential to reduce some of that volatility — something that Matthews Asia has seen occur with its strategies in the past.
Matthews Asia’s lineup of ETFs comprises the Matthews Emerging Markets Equity Active ETF (MEM), the Matthews Asia Innovators Active ETF (MINV), and the Matthews China Active ETF (MCH).
These portfolios offer very different exposures than passive benchmarks and are designed to add alpha, in addition to diversification, over time to client portfolios. The funds are designed to help advisors fine-tune portfolio exposures in a very efficient way, according to Matthews Asia.
MEM invests in emerging market companies with perceived sustainable growth potential, capitalizing on consumption and innovation trends. The fund utilizes an all-cap, company-first approach, which emphasizes fundamental research over top-down country or sector allocation.
MINV, a high-conviction, concentrated equity portfolio, invests in innovative companies in Asia ex-Japan, capitalizing on the new economy and rising disposable income in the region. The fund takes an all-cap fundamental approach and focuses on companies with unique offerings that create or expand markets.
MCH is a high-conviction equity portfolio that seeks companies benefiting from China’s domestic consumption. MCH uses an all-cap fundamental GARP approach driven by proprietary research and combines long-term core holdings with more opportunistic ideas to provide consistency through cycles.
For more news, information, and strategy, visit the Emerging Markets Channel.