Compared to US stocks, the valuation discount for developing country stocks is around 43%, which is almost the largest valuation difference in history.
As investors from around the world were searching for undervalued stocks, active ETFs focused on emerging markets began to surface.
According to data compiled by the media, only 5% of ETFs worth 348 billion US dollars that are invested in developing countries have adopted an active management model, but in the past year, the capital inflow from these actively managed funds has exceeded one-third of the total capital inflow of emerging market ETFs, and over 50% in the past month.
“If there is a clear reason to adopt a more systematic active management strategy, it is definitely now,” said Donald Calcagni, chief investment officer at Mercer Advisors Investment Management. He himself is an investor in actively managed emerging market ETFs. “Observe the various market imbalances, valuations, and market concentration that are emerging around the world.”
There are many reasons why capital is choosing to flow to emerging market stocks. According to data compiled by Bloomberg, the valuation discount for developing country stocks is about 43% compared to US stocks, which is almost close to the largest valuation difference in historical records.
This huge difference sent a buying signal to some on Wall Street, including those with little overseas investment who also thought developing country stocks were undervalued.
Investors have been injecting capital into ETFs betting on emerging assets, hoping to gain an advantage through lower fees and eliminating the complexity of cross-border transactions. This momentum has also reignited the debate over whether investors can reap higher returns from flexible active strategies than passive strategies targeting benchmark indices.
Patrick Maynor, head of stocks and portfolio manager at Trusted Capital Group, purchased in April 2023$American Century Etf Trust Avantis Emerging Mkts Equity Etf Usd (AVEM.US)$The stock is the first to enter an emerging market fund. The ETF's overall return was close to a 13% increase since then, which is 3 percentage points above the benchmark.
Editor/Somer