The Parametric Emerging Markets Strategy: A Third Way of Emerging Markets Investing
Emerging market equities have attracted more and more interest over the past 25 years as perceptions of these developing economies have moved from skepticism to an appreciation for their contribution to global economic growth. Accordingly, an asset class once considered the realm of the courageous (or foolhardy) is now a key part of many investors’ portfolios.
However, investors often find themselves between a rock and a hard place: Active strategies are challenged by high transaction costs and low liquidity, while passive solutions create poorly constructed portfolios concentrated in the most developed of the emerging market countries.
The Parametric Emerging Markets Strategy, outlined in this paper, is designed to efficiently and consistently capture the long-term growth of this asset class, avoiding both the return risks inherent in active management and the concentration risks of the mainstream emerging market indexes.