Intelligent Exposure to Emerging and Frontier Markets
In recent years, emerging markets have become an allocation in many portfolios as investors look abroad for asset growth and diversification. However, individual investors face significant risks and volatility when investing in this asset class.
The problem is compounded by the weaknesses of mainstream emerging and frontier market benchmarks. Significant concentrations exist at the country and sector levels. Traditional fundamental strategies are typically concentrated, yet the data quality in developing countries can be questionable. Furthermore, transactions are expensive in many developing markets, so portfolio turnover can reduce investor returns.
The Parametric Emerging Markets strategy follows a rules-based investment process developed by Parametric. Parametric’s investment philosophy is based on mathematical principles of diversification, compounded growth, and volatility capture. The strategy seeks to add value through portfolio construction and rebalancing among individual countries, while maintaining the diversifying characteristics of this appealing asset class. Since 1994, this strategy has maintained broad diversification across emerging and frontier markets, designed to efficiently capture the long-term returns of developing countries’ equity markets while reducing portfolio volatility.
Investment Strategy & Process
|1. Avoid Concentration||2. Systematic Rebalancing||3. Reduce Frictional Costs|
|Create country target weights that avoid concentration risk at the country and sector level.||As country concentrations build up, rebalance.||Trade portfolios efficiently, reflecting the unique nature of this market.|