Jeremy Schwartz, the Director of Research at WisdomTree Investments, Inc. (NASDAQ:WETF), says that emerging markets are likely to make up a greater share of the world’s economic growth going forward. Emerging market corporations are strategically positioned to benefit from this next phase of economic growth.
But concerns around volatility and short-term risk have tempered many investors’ allocations – and the MSCI Emerging Markets Index’s decline of 53% during the 2008 financial crisis spooked investors. In Managing Risk in the Emerging Markets 2.0, Jeremy Schwartz reviews the development of a burgeoning asset class; emerging markets corporate bonds, and examines how blending EM corporates with an EM equity allocation has the potential to lower volatility during tough periods for the equity markets.
ValueWalk's Raul Panganiban with Maurits Pot, Founder and CEO of Dawn Global. Before this he was Partner at Kingsway Capital, a frontier market specialist with over 2 billion AUM. In the interview, we discuss his approach to investing and why investors should look into frontier and emerging markets. Q2 2021 hedge fund letters, conferences and Read More
The paper finds that a hypothetical 50/50 split between USD denominated EM corporate bonds (defined as the JPMorgan CEMBI Broad Index) and EM equities (defined as the MSCI EM Index) had 6.30% higher average annual returns with more than 10% lower average volatility than a hypothetical allocation of 100% to MSCI EM. Furthermore, the blended allocation resulted in risk levels, or a standard deviation, similar to that of the S&P 500. (It should be noted these conclusions are reached using index-level data; investors cannot invest in indexes and index returns do not account for potential fees, costs and other expenses that may reduce returns.)
WisdomTree takes these compelling characteristics a step further, employing a dividend-focused approach to EM equities and an actively managed investment process with a focus on risk management in the EM corporate space.
- The WisdomTree Emerging Markets Equity Income Fund (DEM): Holds nearly 300 of the highest-dividend-yielding emerging-markets stocks. Securities in the fund are weighted by annual cash dividends paid which results in a value-tilted, income-oriented portfolio.
- WisdomTree Emerging Markets Corporate Bond Fund (NASDAQ:EMCB): U.S. Dollar denominated, broad-based exposure to EM corporate credit; a growing market with attractive yield potential and improving credit quality. Actively managed ETF subadvised by Western Asset Management Company.
The Emerging market corporate debts is a growing asses class that will, according to Jeremy Schwartz, gain prominence in investor portfolios in the coming years. EM corporates offer investors another avenue to enhance their portfolio’s potential income generation, while potentially reducing a portion of the volatility that comes with investing in EM equities.