Monday, October 31, 2016 1.21 PM / Source / ExchangeNews
A quarter (26%) of institutional investors1 say they will capture the rebound in emerging markets through index tracking/passive investments, according to new research commissioned by Source, one of the largest providers of Exchange Traded Funds (ETFs) in Europe. A similar number (24%) said they were unsure whether active or passive strategies were better while half (50%) said active remained their preferred choice.
Source believes the findings underline just how significant passive investments and ETFs have now become in the emerging markets sector.
The research also found that approximately 60% of institutional investors think that emerging market equities will outperform developed market equities over the next 12 months; just 5% did not, with 32% neutral on prospects for the asset class.
Separate analysis3 of Morningstar data by Source shows that over 10 years, 63% of active fund managers underperformed the MSCI Emerging Markets index.
Dr. Chris Mellor, Executive Director, Equity Product Management at Source, commented: “After five difficult years, it is clear that emerging market equities have turned the corner. EM equities look cheap both historically and versus other regions. We are also positive on EM bonds: when you look at debt levels across developed and emerging markets, the countries in the strongest positions are markets such as Mexico, Russia and Indonesia. While demographics and low debt levels imply economic stability, EM government debt is yielding around 6%.
“European investors have already put more than $3 billion into MSCI Emerging Markets ETFs this year and another $2.5 billion into EM local bond ETFs. We expect further continued inflows into EM assets as regional fundamentals strengthen.”
To help its clients better access emerging markets, Source has lowered the fees on its MSCI Emerging Market UCITS ETF to 0.29%, making it one of the most competitive in the market. In terms of the fixed income sector, the PIMCO Source EM Advantage ETF is one of the top-performing EM local bond ETFs this year, with a yield to maturity of 6.8%2.
Dr. Chris Mellor commented: “We strongly believe that passive makes sense for EM. Our MSCI EM ETF gives investors index performance with a low tracking error at a fraction of the cost of an active fund. Our PIMCO Source EM Advantage ETF has delivered good performance at a time when increasing numbers of investors are looking for yield.”
Source UK Services Limited is authorised and regulated by the Financial Conduct Authority in the UK.
1 112 institutional investors interviewed via an online survey in September 2016
2 Date: Bloomberg as of 14 October 2016. Yield to maturity as of 7th October 2016.
3 Data: Source/Morningstar, 31 August 2016, Europe-listed open-ended funds benchmarked to MSCI Emerging Markets. Performance is in USD, after fees. Source ETF is simulated based on current fee levels. Past performance (actual or simulated) is not a reliable indicator of future returns
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