An advantage of active emerging markets ETFs is the ability for portfolio managers to capture opportunities that may be out of the purview of indexes.
This is particularly impactful in emerging markets investing, as the indexes tend to be exceptionally backward-looking. Vietnam is largely considered to be a ripe investing opportunity; however, it is excluded from many passive ETFs since it is still classified as a frontier market.
The well-known MSCI Emerging Markets Index is restricted to investing in the following Asian countries: China, India, Indonesia, Korea, Malaysia, the Philippines, Taiwan, and Thailand, therefore poised to miss compelling investment possibilities that exist outside of this definitive list.
In a recent interview with VettaFi, John Paul Lech, lead portfolio manager for the actively managed Matthews Emerging Markets Equity Active ETF (MEM ), explained the appeal behind opportunities like Vietnam. Vietnam has a population of nearly 100 million people and is growing quite robustly, with healthy GDP growth as well. The country has some mid-cap companies that Lech said are exceptional in terms of their go-forward prospects; however, these are excluded from the MSCI Emerging Markets index.
Lech said there are certain reasons why these opportunities are not included in indexes, one such reason being the increased complexities of trading in a market like Vietnam. However, for active managers who are equipped to assess, understand, and analyze these opportunities, it’s a great way to get in at an early stage.
The managers of MEM are also able to consider emerging markets opportunities that come via companies that are listed in developed countries such as Australia and Canada.
“For instance, we have an energy company in Australia in which last year 90% plus of its exports were going to Asia,” Lech said. “That’s an excellent way to really access and think about growth in Asia, even though it’s listed in Australia. So, for us, inclusiveness is really both things: It’s the frontier, as well as an ability to access those opportunities that are deeply tied back to our geographies.”
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