The growing opportunities among emerging markets equities are leading some financial advisors to rethink their approach to these investments within client portfolios. While nearly half (46%) see emerging markets as a specific sub-class of their clients’ international equity allocation, nearly a third (32%) have come to view them as a tactical opportunity to take advantage of improving market conditions in specific regions of the world.
For a majority of advisors (57%), greater portfolio diversification is the primary reason for emerging markets exposures. Notably, more advisors seek diversification through these exposures than see them as an extension of international equity allocations. This suggests advisors see diversification benefits beyond geography. For example, they may see these securities as a potential hedge against volatility in U.S. domestic market segments, which tend to be more highly correlated with one another.
As further evidence of this possibility, advisors also commonly cite greater return potential (28%) compared to U.S. and developed-market equities as a reason for investing in emerging markets. And for 16% of advisors, emerging markets equities offer a timely tactical opportunity to take advantage of specific global or regional themes that could lead them to outperform companies from markets in developed countries.
As advisors see more reasons to invest in emerging markets, these exposures are also cementing their place as a permanent part of the typical portfolio. Nearly one in five advisors now see emerging market equities as a core allocation as opposed to a subset of a client’s international holdings.