All about ETFs and emerging markets
ETF
Posted by MoneyController on 19.09.2024
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Emerging markets and ETFs: what are some of the prospects for investors opting to buy shares in a fund that replicates an emerging market index?
One option for investing in emerging markets is to buy shares in ETFs. These investments, however, are not risk-free. As Valerio Baselli explains on ‘Morningstar’, it is said that one way to overcome, at least in part, these risks is to rely on active management, i.e. to subscribe to shares in an active fund. Nevertheless, based on data collected by Morningstar analysts, Baselli continues, this is not the case.
In fact, as Morningstar's head of passive strategies research, Monika Calay, puts it, less than half of the active funds that trade in emerging markets do better than market indices. One of the key reasons for the disadvantage of active funds,' Calay further explains, ’is the high management costs of active funds, compared to the (admittedly lower) costs of passive funds.
But what is the trajectory of emerging markets in recent years? As Sara Silano - also on ‘Morningstar’ - explains, although it is growing, the performance of emerging markets is not keeping pace with the so-called more developed countries. Weighing on the performance of the index in question are the lacklustre results of China (whose weight in the index is 20%). In general, in the first half of 2024, these markets were marked by a decline in investor interest, with net outflows, except for the Indian market which, on the contrary, saw an increase in net investments.
Moreover, as Fernando Luque (Morningstar) points out, many funds have begun to give even greater weight to India than to China. Without neglecting the importance of countries such as Taiwan or Brazil. Of course it is true, Baselli continues, that one of the risks for those who invest in market indices is precisely the risk of concentration, namely the risk of investing in indices concentrated on a small number of countries. Even when choosing passive funds, Baselli explains, the diversification aspect is fundamental to mitigating risks.
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