I have been investing in emerging markets via index funds to get the beta exposure, but this is an area that I think is ripe for active management. I have been trying to search for an active fund manager in emerging markets, but have not found any that have:
Any suggestions?
Take a look at Oppenheimer Developing Markets (ODVYX).
Thanks, though I believe ODVYX (and other associated fund classes) is closed to new investors.
You could check out BLSAX (black rock long-short), but it might cost a lot. Haven’t looked at this much since launch - but liked the basic concept behind it. Has outperformed EEM on risk-adjusted in a very short sample since launch.
If you are okay with volatility…Could also look at CEF’s from Aberdeen or Stone Harbor (or create a system for the sector). They are both pretty good managers in the space. See if you can find a CEF from them at a deep discount. They have at least one manager I remember researching who had a 5 year live history of good alpha. CEF’s are nice sometimes here as they have limited assets.
Like this:
ABERDEEN EMERGING OPPORTUNITY FD. A lot of states use these guys for this space (emerging markets)…for example Virginia in their 529 plan.
I also like the management at Stone Harbor. Can read up on them.
So…could build a trend following trading system with them…they have a lot of Vol. But look to catch the up moves and just sit in cash or an emerging market short-term debt fund when they are getting hammered.
None of this is investment advice. But…some places I might start researching.
Thanks Tom. I hadn’t considered CEFs or long-short funds before. Seems like they might be worth taking a look at to gain EM exposure.
My rule of thumb when choosing funds is that the lowest cost product will put more money into your pocket. The exception is where there is good reason to think that you can know in advance that a particular fund has a market beating strategy.
For mutual funds the cheapest choice is VEIEX. Vanguard Emerging Markets.
If you would consider ETFs you may want to check out:
EWEM - MSCI Emerging Markets Equal Weight. Equal weighing is generally expected to outperform Cap Weighing over the long term by a couple of %/year with just slightly greater volatility.
and
DBEM - Cap weighted but with currency exposure hedged. I like the idea of hedging the currency exchange exposure. Not because I have an opinion on the USD relative to the other currencies but because I don’t. Hedging the currency lowers volatility.
I actually agree with Chipper that a very low cost fund is likely your best bet in this space. I actually only hold EEM and VWO in this space myself. And will keep holding them because I have a lot of long-term cap. gains locked in. And have held DGS in the past (from Wisdom tree). I was simply trying to offer some ‘alternative’ actively managed options beyond those - things that I’d looked at in the past…cause it sounded like you wanted them. I think EWEM sounds very good. I prefer equal weight to market cap weight. I do think the space is right for active management. But hard for a retail investor to access.
Agree with Chipper and Tomyani on this. ETFs are the best way for most investors to get emerging market exposure. Personally I prefer VWO over EEM because fees are lower. You might also check out PIE, a momentum-based emerging market ETF - though recently its momentum is weak. Personally I use these ETFs in conjunction with the Ivy Portfolio tactical model (well, a variation on this developed by some researchers at Cass University), so PIE is not one of my investments at the moment due to a sell signal a few months back. But I suspect I will be back in it before long. It also has decent volume, unlike EWEM.
If you prefer buying stocks to ETFS/mutual funds, try www.thaistocks.com. For a flat fee you get Paul Renaud’s Thai small cap recommendations. Average performance is about 30% per annum.
SET likely bottomed on Jan 3, it looks like 2014 will be a good year for it (but not the country).
Thanks everyone for your comments. I personally hold VEIEX (the fund equivalent of VWO) for my EM allocation. I was coming to the same conclusion that it is hard for a smaller investor to effectively access active management in EM for a reasonable fee.
I will check out EWEM though - just need to figure out how best to get a good price with the bid-ask spread. These “smart beta” strategies (e.g., equal-weighting) may be a good way to apply factor-based approaches, and would be considered somewhere between active and passive management, in both alpha and fees. Or at least that’s the marketing message from the smart beta investment managers. I have ignored smart beta until now because I just use P123 for my U.S. equity allocation.