6 September 2023
Navigating Risks & Diversification in Emerging Markets
For over a decade, global economies and markets have enjoyed the benefits of liquidity injections by central banks worldwide. This has resulted in increased access to financing and a decrease in investor risk aversion. A notable outcome of this low-interest rate environment is the considerable flow of investments towards growth-oriented Emerging Market (EM) managers and a heightened concentration of mega cap growth companies in market cap based indices.
As we transition into a higher rate landscape, investments are expected to shift towards a more diverse range of companies, benefitting investment approaches that emphasise strong valuation perspectives. To mitigate risk, investors should consider actively diversifying their portfolios with more comprehensive, fundamentals-driven exposures to EM. By examining the risk concentration within a prominent market-cap weighted index like the MSCI EM, which is often favoured for EM allocations, we can emphasise the importance of diversification. This analysis will compare a passive approach with the RAM EM Equity All Cap strategy.
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