Throngs of investors in emerging market exchange traded funds have in recent years, with many trying to diversify their portfolios by investing in a broad swathe of emerging market companies piled. But according to a new study, emerging market of ETFs can have the opposite effect.
The study, carried out by the Institute of fire found, that many emerging market of ETFs are far more concentrated than to realize many investors. "The number of companies to invest in emerging markets available in developed markets, reflecting great opportunity, greater", the study said. "And yet, the indexes (and ETFs, the these indices) reflect emerging markets are usually strong in only a handful of Companies… are concentrated in the should many passive investments are in fact, extremely market capitalisation because of the disproportionate size of its largest enterprises and blind weight."
The push in passive emerging market funds in recent years large was, says fire. Ten years ago, active managed emerging market strategies 10 times as much as passive strategies; Today are about the same. (In the rest of the world active strategies manage twice as much money as passive strategies, fire found.)
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An example of how focused emerging market funds and indexes has the S & P global wide index. To the index of Brazil come from fire assets 47% the five large largest Brazil operated. In China, the top is five 42%. Many such funds of also tends to be above all industries are concentrated, said fire. Look at this index top five companies for each of the BRIC countries (Brazil, China, Russia and India), 90% of the market capitalization from are two areas: Financials and energy stocks.
Fire offers some more in-depth analysis of emerging fund market concentration. One of the most important conclusions: investors looking for opportunity and diversification in the emerging markets should active investment strategies, rather than passive ones. "As emerging markets is the equity markets largest region now according to the number of their investable securities, can invest it ready and active opportunities for investors outside of the largest securities, create" the study says. "For investors, the potential in the emerging markets and improved diversification benefits, active Manager can provide a more attractive alternative."
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