Active Management Rules Emerging Markets

OppenheimerFunds would like to remind you that despite all the talk about ETFs and the new smart beta ETFs eating their lunch, active money managers are alive and kicking. This is especially true when it comes to big money – the institutional client. They prefer a go-to money manager they can trust, with 92% of institutional demand for emerging market equity going to actively managed funds and the rest going to ETFs. On the debt side of things, it’s even higher. Active money managers run 98% of emerging market bond money out there. But don’t fret ETF universe. More money is coming your way. The pot is getting deeper, so there might be enough to go around for active and passive for both the institutional investor and the high net worth investor. OFI Global Asset Management, an OppenheimerFunds company, and Greenwich Associates, published a report this week on the subject. The report mainly examines how institutional investors are shifting their views on emerging market investing. The report is based on interviews with 121 institutional investors representing corporate pensions, public pensions, endowments and foundations, defined contribution plans, union plans, and investment consultants in the United States and Europe. They say they will be allocating more to emerging. Respondents believe that emerging market economic development will be driven by increasing levels of education, modernizing infrastructure and innovation. The study found that institutional investors see the shift from “old economy” to “new economy” fueling fundamental change across these markets. For global-minded investors, however, this same belief could have been registered 20 years ago. They would have been right then as well. A number of specialist funds tell us that institutions are turning to emerging markets simply to re-allocate back into an asset they have been underweight at least since the Taper Tantrum in May 2013. Not to mention the fact that the U.S. market is expensive, and emerging markets tend to similar dividend yield in dollars and much higher bond yields. Some 78% of U.S. institutions surveyed said active strategies will be their main source for gaining exposure into emerging markets. In addition, respondents noted that 85% of European and 31% of U.S. institutions expect to incorporate environmental, social, and governance principles into their investments in emerging countries. Interviews were conducted by Greenwich Associates with 121 institutional investors, from the U.S. and Europe, between November 2016 and February 2017.