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Emerging Markets - Evolving Strategies for Portfolio Implementation

Brendan Maton
Investing in Emerging Markets is hardly a new concept for investors across Europe; most investors now recognise the potential long term returns benefits of including emerging markets exposure within their portfolios. Although the story remains compelling, we believe there is a shift in dynamics that could change the way we invest in emerging markets.

Emerging markets have "grown up", the larger emerging market companies have become more correlated to the rest of the world while many sovereign debt issuers have established enviable fiscal positions. It has also become more challenging to find active managers who have capacity along with a strong track record of out performance. For equity investors this has led to strong inflows into passive emerging markets strategies, a quest for a broader emerging market exposure, and a plethora of new passive approaches to accessing emerging markets. In fixed income the time is now ripe to bring indexing discipline to a maturing market.
We will share our insights on:
• Changing dynamics and governance needs in Emerging Markets
• Alternative approaches to Emerging Markets; news indices, access through developed market exposure
• Efficient implementation given the changing dynamics
• The growing suitability of index strategies to local currency Emerging Debt Markets

There are many things to consider when investing in Emerging Markets. Northern Trust’s experts will highlight the evolving opportunity set, ways in which to get exposure and some of the new alternatively weighted indices. Finally we will take a look at implementation strategies for getting efficient beta exposure to emerging markets.
Jul 3 2012
65 mins
Emerging Markets - Evolving Strategies for Portfolio Implementation
Emerging Markets Evolving Strategies for Portfolio
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    • Are institutional investors still under-allocated to Emerging Markets?

    • What is driving EM returns and how can investors evaluate different components?

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    Gaurav Mallik
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    Hosted by:
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  • Emerging Markets - Evolving Strategies for Portfolio Implementation Recorded: Jul 3 2012 65 mins
    Investing in Emerging Markets is hardly a new concept for investors across Europe; most investors now recognise the potential long term returns benefits of including emerging markets exposure within their portfolios. Although the story remains compelling, we believe there is a shift in dynamics that could change the way we invest in emerging markets.

    Emerging markets have "grown up", the larger emerging market companies have become more correlated to the rest of the world while many sovereign debt issuers have established enviable fiscal positions. It has also become more challenging to find active managers who have capacity along with a strong track record of out performance. For equity investors this has led to strong inflows into passive emerging markets strategies, a quest for a broader emerging market exposure, and a plethora of new passive approaches to accessing emerging markets. In fixed income the time is now ripe to bring indexing discipline to a maturing market.
    We will share our insights on:
    • Changing dynamics and governance needs in Emerging Markets
    • Alternative approaches to Emerging Markets; news indices, access through developed market exposure
    • Efficient implementation given the changing dynamics
    • The growing suitability of index strategies to local currency Emerging Debt Markets

    There are many things to consider when investing in Emerging Markets. Northern Trust’s experts will highlight the evolving opportunity set, ways in which to get exposure and some of the new alternatively weighted indices. Finally we will take a look at implementation strategies for getting efficient beta exposure to emerging markets.
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  • Minimum Variance Indices Recorded: Jun 12 2012 60 mins
    Minimum Variance Indices have multiple usages for investors as part of their asset allocation:
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    • Minimum Variance portfolios use less risk budget available to investors.
    • Due to efficient portfolio construction no “overspending” of risk in relation to achievable return.
    • Shortcomings and structural performance deficits of market cap weighted indices are mitigated through alternative weighting mechanism.

    STOXX+ Minimum Variance Indices have been developed in collaboration with Axioma, a leading provider of portfolio constructions tools and risk models. Axioma provides the fundamental factor model used to calculate the rebalancing portfolios.

    Multiple index versions to cater for a broader investor base
    • Create a stand-alone minimum variance strategy index family (unconstrained version)
    • Create a minimum variance improvement on market-cap. weighted benchmarks (regular version)

    Unconstrained index version is a novelty and offers the following benefits:
    • Full optimization to minimize risk
    • With only very basic constraints, there is the freedom to provide increased optimality in resulting portfolio
    • Resulting portfolio might have a bias towards certain properties (specific factor, geography etc.) as the aim is purely to minimize variance
    • The freedom is expected to provide lower risk
  • Intelligent Equity Investing for Risk Budgeting Needs Recorded: Apr 24 2012 64 mins
    Introduction to Webcast Topic:
    Equity markets can be extremely volatile. A risk-budget investment framework penalises the use of equities as the risks have increased and expected returns have decreased. Nevertheless, equities must continue to be an essential part of portfolios in order to provide asset diversification and be a long-term hedge against inflation.

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    • By focussing on smart risk reduction, one can generate excess returns across different economic cycles and equity universes.
    • Proper selection and weighting of equities based on risk criteria can bring substantial stability to an equity portfolio.
    • Risk efficient investing is a "smart" alternative to both active and passive equity investing.
  • Strategy Indices And Their Role In Institutional Portfolio Construction Recorded: Feb 16 2012 62 mins
    MSCI invites you to attend a special webinar on ‘Strategy Indices and Their Role in Institutional Portfolio Construction.”
    The event will be hosted by Dimitris Melas, MSCI Executive Director and Global Head of New Product Research, and Roger Urwin, Special Adviser to MSCI and Global Head of Investment Content at Towers Watson.
    Topics for discussion include:
    * Definitions of alpha are evolving as investors recognise that strategy indices can capture various systematic risk premia (alternative beta) such as value, size, low volatility or momentum. Systematic factors are increasingly considered key drivers of long-term performance.
    * Institutional asset allocation may be on the verge of a shift from diversification across active managers in multiple alpha mandates towards diversification across strategy betas in multiple index mandates.
    * We present a risk budgeting framework for integrating strategy indices into institutional portfolios where allocations to risk premia strategies are based on their expected risk and performance characteristics.
    * Increasing adoption of risk-based asset allocation, growing acceptance of the potential impact of systematic risk factors on long-term portfolio performance and the need to capture these factors through transparent and cost effective vehicles may drive further innovation and new product development in the indexing arena.
  • Efficiency in An Age of Uncertainty Recorded: Jan 31 2012 60 mins
    The turbulence and uncertainty that has confronted investors during the past 10 years has given rise to shift towards passive investing. In response, a new range of alternative and, increasingly, customised index approaches has been created to help investors address their specific concerns. The ability to tailor an index to provide specific exposures or risk/reward ratios, then passively manage to this index raises questions about the distinction between alpha and beta.

    Northern Trust recently engaged in research to examine more closely the practical implications for investors of the evolving use of passive investments in institutional portfolios. In particular, our research highlighted some interesting trends, including:
    - Investors' expectations for using passive management in the future,
    - The effect of increasing passive use on investment decision making,
    - Current concerns about achieving efficient beta, and
    - Opportunities for removing unwanted biases and inefficiencies in existing indexes.
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