Proponents of passive approaches typically claim that active managers do not deliver consistent alpha and that passive fees are significantly lower than active. This boils down to the question: can active managers in EMD add sufficient value to justify the higher fees they charge?
In our paper we examine the alpha – realised and potential – deriving from active management in EMD and look at the cost saving potential of passive approaches in this field. The analysis looks at the factors that are crucial for successfully harnessing alpha and investing sustainably in this unique and evolving investment universe.
We find that:
- Active EMD managers have delivered alpha in the long term
- The cost savings from investing passively are more limited in EMD
- Active approaches can be best placed for sustainable investing
As we enter the next chapter in emerging markets, we believe that the EMD universe is – and will remain – one of the richest environments for active managers to operate in thanks to the size and diversity of the opportunity set, the inefficiencies caused by non-profit maximising market participants and a lack of market information. All of this creates value adding opportunities for those with the relevant experience, expertise and toolkit.
All investments carry the risk of capital loss and past performance is not a reliable indicator of future results.
Emerging market: These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems.