Advisors face hurdles when it comes to getting investment information on emerging markets. Difficulty obtaining high-quality information about emerging market securities may be keeping advisors from increasing clients’ exposure to emerging markets. As a result, advisors are approaching their emerging markets equity allocations with a certain amount of caution.
Advisors are most likely to rely on asset management firms (39%) and independent research firms (33%) as their primary source of information on emerging markets. However, only 22% of advisors express high confidence in the quality and transparency of securities data they see coming from these markets. A majority (63%) are only somewhat confident, suggesting they feel compelled to pay extra attention to the potential risks associated with emerging market investments.
One way they appear to be balancing these risks is by seeking out investment managers with expertise in the area. Advisors greatly prefer to gain exposure to emerging markets through investments made by active managers dedicated to that category of investment. Where 59% of advisors seek out actively managed investments for emerging markets exposures, only 26% use passively managed index approaches.
Active managers with a solid track record of past performance play an important role in advisors’ decision-making. Advisors also report paying careful attention to the risk characteristics of the funds these active managers and the regional expertise they display. These responses suggest advisors are relying on active managers’ expertise to make up for the lack of available high-quality data they might otherwise use to evaluate a potential investment.