Despite market volatility and a reduced risk appetite, investors recognize emerging markets as an asset class to enhance their investment returns and diversify their portfolios. According to a study published by Vontobel Asset Management, many are determined to embrace the opportunity and move toward higher emerging market allocations – across both equities and fixed income.
In a survey of 300 institutional investors and discretionary wealth managers across 18 countries, more than half of respondents expect to increase their emerging market allocations over the next five years, with a minority intending to move to higher allocations over the next 12 months. The study observed a desire for new sources of returns as a driving factor. Additionally, 35% believe it is easier to secure alpha in emerging markets. Specifically, of those who intend to increase their exposure, nearly 70% favor the better-known and larger markets of Asia, and more than 60% look to emerging Europe, while only 40% are focused on Latin America, and even fewer on the Middle East and Africa.
The data suggests that the perception of risk around emerging markets investments is still a significant barrier to realize a strong increase in allocation. Not surprisingly, the impact of Covid-19 tops the list of risks, followed closely by issues such as trade tension and economic nationalism. The role of active management, combined with an integrated ESG approach, is critical in navigating these challenges. In the study, investors expressed their preference for an active approach, citing the need to avoid strong country bias in indices (notably to China) and highly volatile returns.
Importantly, the survey research also confirmed investor appetite for strategies incorporating ESG considerations. In fact, among investors with time horizons of 10+ years, 70% say ESG factors influence the decisions they make about their emerging market exposure. Investors appreciate ESG integration as an important risk reduction tool—for this, we believe an active approach is essential. Active ESG management aims to ensure risks are actively minimized and opportunities actively advanced. Believers in active stewardship engage with companies to help create positive outcomes and execute voting rights in the interest of good governance and sustainability.
“Powered by structural drivers such as demographic factors, emerging markets can offer more growth than developed markets in the years ahead. For investors able to balance risk with opportunity, the future is exciting,” commented Axel Schwarzer, Head of Vontobel Asset Management. “Strategic asset allocation across a range of emerging markets should offer access to new opportunities and enhanced returns.”
Vontobel Asset Management is a pioneer in emerging market investing, committed to adding value for clients worldwide since 1992. As of 30 June 2020, Vontobel manages approximately CHF27 billion in emerging markets across fixed income and equity portfolios. Emerging market investing is central to Vontobel’s investment capabilities, with approximately 23% of total assets under management and more than 50 investment professionals dedicated to this asset class.
Vontobel Asset Management
Vontobel Asset Management is an active asset manager with global reach and a multi-boutique approach. Each of our boutiques draws on specialized investment talent, a strong performance culture and robust risk management. We deliver leading-edge solutions for both institutional and private clients. Our commitment to active management empowers us to invest on the basis of our convictions. We deliver value through our diverse and highly specialized teams. Employing over 400 professionals worldwide – including 170 investment specialists – we operate across 13 locations including Switzerland, Europe and the US and create strategies and solutions covering equities, fixed income, multi-asset and alternative investments. The goal of achieving excellent and repeatable performance has been fundamental to our approach since 1988. A strong and stable shareholder structure guarantees our entrepreneurial independence and protects the long-term mindset that guides our decision-making.
