Rethinking Emerging Markets: From Concentration to Opportunity: BI Replay

Asset owners around the globe seeking to diversify beyond U.S. stocks into emerging markets (EM) seem to be overlooking risks. The most common way to gain exposure to EM equities -- cap-weighted benchmarks -- is just as concentrated as their U.S. counterparts. Factor strategies offer an alternative means of gaining exposure to EM equities, with better risk-adjusted returns. While some developed market factor premia have reportedly been arbitraged away, they continue to be significant in emerging markets. Using factor-based country allocation is another method for generating alpha when investing in EM equities. Concerns over the difficulty of replicating factors in EM equities seem overblown.