Looking for Post-Recession Ideas? Consider This EM Model Portfolio

The bear market induced by the onset of the coronavirus pandemic last year was one of the shortest on record, and while the subsequent recession was shallow relative to others, advisors may still want to consider rebound ideas, including emerging markets assets.

Model portfolios, including the Emerging Markets Multi-Factor Portfolio, are up to the task.

“This model portfolio is designed for investors with a long-term horizon looking for exposure to a broad universe of Emerging Market equities primarily using factor focused ETFs. The selected ETFs provide certain factor tilts that have the potential to generate excess return relative to comparable cap-weighted benchmarks over longer-term holding periods. The strategies may use both WisdomTree and non-WisdomTree ETF,” according to WisdomTree.

A Positive Precedent for Emerging Markets

Historically, emerging markets equities perform well as recessions end and the economy rebounds.

“Another of the foundations for our positive EM outlook is that we believe there will be continued weakness in the U.S. dollar (which provides a tailwind to non-U.S. risk asset performance in U.S.-dollar terms)—a weakness that began roughly at the nadir of the Covid-19 pandemic last year,” said Scott Welch, WisdomTree model portfolios chief investment officer.

Market watchers point to Asia’s relative success in containing the pandemic in particular. China has even returned to positive growth in 2020. Additionally, vaccine breakthroughs in China, India, and Russia, along with renewed demand for commodities and Joe Biden’s $1.9 trillion stimulus plan are all contributing to the broader optimism.

Meanwhile, analysts have been upwardly revising earnings estimates on emerging market companies faster than for those in developed countries. In comparison, projections are relatively unchanged in the U.S. They are even 11% lower across Europe.

Bargain hunters are also eyeing developing economies. Emerging market stocks now trade at an almost 29% discount to U.S. markets, compared to an average of 25% over the past 15 years.

“We believe the EM investment theme still has room to run, and our Model Portfolios are positioned accordingly,” concludes Welch. “We believe ‘we can see clearly now’ into an extended period of solid performance in our explicit EM Model Portfolio and in the EM allocations within our broader equity and fixed income Model Portfolios. We invite advisors who agree with our thesis to take a closer look as we attempt to help them deliver a differentiated end client investment experience.”

For more on how to implement model portfolios, visit our Model Portfolio Channel.

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.