Global macro investing requires that a fund manager study and understand the global investment forest first.
In this video, Why Active in Emerging Markets, William Blair discusses the advantages of active management in emerging markets versus passive investments such as ETFs. A summary of the video’s key points:
- Alpha Opportunities in Emerging Markets: Emerging markets are seen as fertile ground for active management due to their rapid growth, underrepresentation in indexes, and large populations. These factors are expected to lead to significant stock price movements and increased global market representation.
- Comparison with Passive Investing: The video argues that passive investing is akin to looking in the rearview mirror, as it follows changes rather than anticipating them. In contrast, active management aims to predict and capitalize on market shifts.
- Shift in Market Drivers: There has been a notable shift in the drivers of emerging markets. For example, commodities, which were the primary driver in 2000, have decreased in importance. In contrast, technology has grown significantly, from 10% of the market index in 2002 to almost 30% in 2018. Active managers can foresee and benefit from these changes.
- Navigating Risks: Active management is crucial for navigating the inherent risks in emerging economies, such as the prevalence of state-owned enterprises, which often lag behind privately-owned companies in terms of returns.
- Performance of Active Managers: The video highlights that active managers in emerging markets tend to outperform passive managers across various time periods and quartiles, which is unique compared to other asset classes.
William Blair makes the case that active management in emerging markets permits the fund to, generally, outperform passive strategies in these regions.
Global macro investing requires that a fund manager study and understand the global investment forest first.
