Many investors’ portfolios exhibit home country bias, where their allocation to domestic stocks is substantially higher than their country’s weight in the global markets. While US stocks comprise approximately 60% of the value of the global stock market, many investors have between 80% and 100% of their equity allocation in the US market. As a result, these investors are underexposed to emerging market equities, especially Asian growth stocks. Growth stocks in emerging markets are especially under-owned, as many emerging market indices have large allocations to slower-growing state-owned enterprises.
It can be difficult to outperform the highly efficient US large-cap equity market due to the large number of analysts and active managers. In contrast, there may be much greater inefficiencies and opportunities for alpha and uncorrelated growth in emerging markets equities. With 85% of the trading volume in the Chinese equity market taking place by retail investors, the influence of disciplined institutional investors is relatively low.
Rayliant implements a quantamental investing approach that combines quantitative and fundamental investment strategies. Rayliant deploys investment team members in Asia who are skilled in fundamental analysis. On the quantitative side, Rayliant deploys big data and machine learning approaches to identify investment opportunities.