Fools rush in

After a difficult time in 2015, emerging markets have enjoyed some welcome respite over the past few years. Throughout 2016, the MSCI Emerging Markets Index delivered NAV returns of 32.6%, and 2017 saw similarly strong returns of 25.4%. 

Investors have caught onto the strong performance delivered by EM equities, with an abundance of cash flowing into EM index tracking ETFs. However, are ETF investors missing a trick?

Whilst index trackers help investors get exposure, the numbers show that 'active' management tends to work extremely well in emerging markets. Statistics from Bloomberg show that investors in emerging market ETFs should consider an actively managed collective investment vehicle (such as a unit trusts or investment trusts). 

Closed-end funds such as investment trusts have an advantage over open-ended funds - in that their managers do not have to worry about investors redeeming their holdings; and so have a fixed pool of capital with which to pursue their ideas - helpful in less liquid markets such as emerging markets. At times, they also trade at large discounts to their Net Asset Value. We recently met two highly active emerging markets managers, both of which stand on double digit discounts despite having had track records of outperforming their benchmark indices and ETFs.