Introduction
In the ever-evolving landscape of global investment, the quest for undervalued assets is relentless. Lately, a significant surge in interest has been observed in actively managed exchange-traded funds (ETFs) targeting emerging markets. Despite constituting a mere 5% of the $350 billion market for ETFs investing in developing-nation assets, actively managed funds have emerged as the focal point, attracting over a third of the new capital inflow in this asset class over the past year.
A glaring statistic captures the attention of investors: developing-nation stocks are currently trading at a staggering 43% discount compared to their counterparts in the United States, marking one of the widest valuation gaps on record. This stark contrast has ignited a spark among investors, signaling a potential goldmine of undervalued opportunities, particularly for those seeking diversification and lower-cost investment vehicles like ETFs.
One notable success story comes from Patrick Maynor, Head of Equities at Trusted Capital Group, who made a strategic move into the Avantis Emerging Markets Equity ETF (AVEM) in April 2023. Since then, AVEM has outperformed its benchmark by an impressive 3 percentage points, showcasing the potential of actively managed strategies in capturing market opportunities.
The lion’s share of investments pouring into actively managed emerging-market ETFs has been directed towards strategies managed by Avantis Investors and Dimensional Fund Advisors, renowned for their lower fees and consistent outperformance against passive benchmarks.
Conclusions
The growing allure of actively managed ETFs in emerging markets has prompted product issuers to innovate and introduce new offerings with competitive fee structures and unique investment strategies. Funds like AVEM and the recently launched Avantis Emerging Markets ex-China Equity ETF (AVXC) are capitalizing on investor preferences for targeted exposure, signaling a broader shift towards specialized investment approaches tailored to seize emerging opportunities while mitigating risks.
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