There are many benefits of actively managed investing, including finding and capturing growth.
Active funds have been able to counter the challenges of other markets by leveraging the strength of Vietnam, something passive funds have been powerless to do, according to Matthews Asia.
Taiwan, a key global supplier of semiconductors and a common constituent of emerging market benchmarks, has been hurt by softening demand in the chip industry, while Vietnam, a lower-profile frontier market, has experienced rapid industrial growth, according to Matthews Asia.
Vietnam has a population of nearly 100 million and is growing quite robustly in population and GDP. The country has some mid-cap companies that are exceptional in terms of their go-forward prospects; however, these are excluded from the MSCI Emerging Markets index, according to John Paul Lech, portfolio manager for the actively managed Matthews Emerging Markets Equity Active ETF (MEM).
Lech said there are certain reasons why these opportunities are not included in indexes, one such reason being the increased complexities of trading in a market like Vietnam. However, for active managers equipped to assess, understand, and analyze these opportunities, it’s a great way to get in at an early stage.
Active management is particularly impactful when exposed to emerging markets, as the indexes tend to be exceptionally backward-looking. While Vietnam comprises many lucrative investment opportunities, it is excluded from many passive ETFs since it is still classified as a frontier market.
The well-known MSCI Emerging Markets Index is restricted to investing in the following Asian countries: China, India, Indonesia, Korea, Malaysia, the Philippines, Taiwan, and Thailand, therefore poised to miss compelling investment possibilities that exist outside of this definitive list.
Other opportunities limited to active ETFs include investing in Western companies with large emerging markets exposures, accessing companies initially listing on public markets, and diversifying into new markets and asset classes like small caps.
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