Invest
Fund flags emerging market mistakes
A fund manager has outlined key pitfalls investors need to avoid when they are investing in emerging markets.

Fund flags emerging market mistakes
A fund manager has outlined key pitfalls investors need to avoid when they are investing in emerging markets.

US fund manager Parametric says emerging markets present an opportunity for super funds to maximise their returns.
“At a time when some super funds are increasing their weight to emerging market equities in a search for higher returns, what makes a good emerging market investment strategy is a question well worth asking,” Parametric’s Australian research managing director Raewyn Williams said.
“Many emerging market fund managers are capacity-constrained, so as super funds look for new [investment] strategies, it is worthwhile revisiting what makes for an effective exposure to these equity markets.”
While traditionally funds’ approach to emerging markets has deficiencies, Mr Williams said this can be avoided.
“In the past, it seems that many super funds have just been content to accept these deficiencies as part and parcel of investing in these markets.”
Mr Williams said investors should be mindful of the following when investing in these markets:
1. Avoid under-diversifying
“Diversification is a rare ‘free lunch’ for portfolios, but a typical passive emerging market portfolio, and many active portfolios, is not well diversified and can have high concentration risks,” he said.
2. Location, location, location
“The only broad risk that is really important to manage in emerging market portfolios is country selection. Other risks matter less so managing them is second order.”
However, investors should be careful not to confuse this risk with risks that drive developed market equity returns.
3. Don’t sit on the fence
While the idea of hedging is usually synonymous with risk management, Mr Williams dismissed this practice for emerging markets.
“Currency hedging is not worth the effort for philosophical and practical reasons. It can actually undermine what super funds are trying to achieve in emerging markets.”
4. Favour transparency
Due to the nature of these investments, you should ensure your fund is open and transparent.
“Emerging markets are, by definition, a high-risk asset class and can deliver shocks, so super funds need transparency about what’s happening inside their emerging market portfolios. This creates a headwind for active emerging market strategies that can be opaque ‘black boxes’ versus simpler, rules-based emerging market strategies,” Mr Williams said.

Stock market
Markets succumb to jitters as US CPI maintains strength
Following a slight drop of 0.2 per cent in the United States inflation rate, the latest US April consumer price index (CPI) data indicating higher than expected figures has triggered a fall in the US ...Read more

Stock market
Qantas forecasts return to profitability, announces ultra-long flights
Qantas expects its net debt to condense from $5.5 billion at the end of 2021 to $4.5 billion at the end of April following a period of sustained recovery in travel demand. ...Read more

Stock market
Headwinds to outnumber tailwinds in 2022
Headwinds are likely to outnumber tailwinds in 2022 as the world continues to readjust to the post-pandemic era, one expert has said. ...Read more

Stock market
Aussies can now net frequent flyer points by trading stocks
Superhero is looking to sweeten the deal for traders who are excited for the return of international travel. ...Read more

Stock market
Facebook debuts new name
Zuck gets meta. ...Read more

Stock market
2 big questions investors should ask as Australia reopens
Investors need to stop thinking about how to profit from the mineral sector’s struggles, and start looking at when the best time to ride the recovery will be. ...Read more

Stock market
Trading app popularity skyrockets as retail sector booms
In 2021, trading has never been easier for retail investors, meaning the number of users on trading applications has exploded to an all-time high. ...Read more

Stock market
ETF rush predicted to intensify
The Australian ETF sector advanced AU$6.3 billion in August to hit a new milestone, as its popularity among financial advisers soared. ...Read more

Wrapping up an eventful 2021
Listen now

What Omicron means for property, and are units right for first-time buyers? What is equity crowdfunding? Are industry super funds tapping into member funds to save their skins?
Listen now

Will housing affordability improve in 2022? Will buy now, pay later become the norm? Why are Aussies staying in failing super products?
Listen now

Who really benefits from crypto ETFs? How will the RBA respond to rising inflation? Could a mandate help address unpaid super?
Listen now

Stock market
Markets succumb to jitters as US CPI maintains strength
Following a slight drop of 0.2 per cent in the United States inflation rate, the latest US April consumer price index (CPI) data indicating higher than expected figures has triggered a fall in the US ...Read more

Stock market
Qantas forecasts return to profitability, announces ultra-long flights
Qantas expects its net debt to condense from $5.5 billion at the end of 2021 to $4.5 billion at the end of April following a period of sustained recovery in travel demand. ...Read more

Stock market
Headwinds to outnumber tailwinds in 2022
Headwinds are likely to outnumber tailwinds in 2022 as the world continues to readjust to the post-pandemic era, one expert has said. ...Read more

Stock market
Aussies can now net frequent flyer points by trading stocks
Superhero is looking to sweeten the deal for traders who are excited for the return of international travel. ...Read more

Stock market
Facebook debuts new name
Zuck gets meta. ...Read more

Stock market
2 big questions investors should ask as Australia reopens
Investors need to stop thinking about how to profit from the mineral sector’s struggles, and start looking at when the best time to ride the recovery will be. ...Read more

Stock market
Trading app popularity skyrockets as retail sector booms
In 2021, trading has never been easier for retail investors, meaning the number of users on trading applications has exploded to an all-time high. ...Read more

Stock market
ETF rush predicted to intensify
The Australian ETF sector advanced AU$6.3 billion in August to hit a new milestone, as its popularity among financial advisers soared. ...Read more