Where Can Active Managers Thrive in 2021? | ETF Trends

While there are plenty of asset classes ready to benefit from active management in 2021, emerging markets stocks are among the top choices.

Emerging markets (EM) were one of the hardest hit as the COVID-19 pandemic ravaged the global economy. Yet the tide could be turning. ETF investors looking to get in on EM economies may want to consider the perks of having active managers on their sides.

There’s “a well-established long-term uptrend interrupted by a long trading range that now appears to be ready to break out to the upside,” according to Fidelity research.

Renewed Hope for Emerging Markets Equities?

Emerging markets equities are turning higher, and many market participants are bullish on the prospects for the asset class heading into 2021. Moreover, given the extended low-rate environment, many income seekers are turning to alternative sources of yield, such as the rebounding emerging markets.

“An essential part of that potential mean-reversion, I believe, is the US dollar. For EM to outperform both cyclically and secularly we will need to see the dollar head lower. After all, for a US-based investor, currency risk is an important part of the mix if you’re invested in non-US markets,” notes Fidelity.

One thing to think about before EM investors decide to jump in is the uneven recovery. While China is leading the way after rebounding from the effects of Covid-19, some countries are still in the rearview mirror. That speaks to the advantages of active management, because active managers don’t have to adhere to the geographic constraints set forth by a passive index.

“So, the dollar seems to be doing its part, but EM earnings will need to do some heavy lifting as well. Indeed, both the global and EM earnings cycle have clearly bottomed, aided in part by China’s credit impulse (as defined by credit growth as a percentage of economic growth),” according to Fidelity.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.