Investors have a more positive outlook for emerging markets (EM) performance compared to this time last year, according to the latest results of asset manager and ETF issuer Columbia Threadneedle’s biannual poll of financial advisors and investment professionals focusing on sentiment and equity allocations to EM.
Marc Zeitoun, Head of Strategic Beta at Columbia Threadneedle Investments.
Although the Investor Sentiment Score dropped 9% from Q2 2016 to 627, indicating investors generally have a “neutral” outlook towards EM for the next 12 months, the score is up 27% from the end of 2015. (See graph below)
The survey found that 64% of respondents expect to stay the course with their EM allocation over next 12 months, while only 28% expect to increase it, compared to mid-2016 when 46% expected to increase their allocation. Additionally, 85% of current respondents say their existing EM allocation is about the same or higher than 12 months ago, while only 15% said their allocation was lower, versus 37% of respondents at the end of 2015
The results are consistent with market performance that showed EM was up 10.8% in 2016, but underperformed the US markets following the presidential election.
Marc Zeitoun, Head of Strategic Beta at Columbia Threadneedle Investments, commented: “While EM sentiment may have slipped slightly last year, the election did not significantly impact allocations, indicated by our respondents who said they mostly expect to maintain their allocation over the next year. Representing 40% of global gross domestic product, EM is not only the largest portion of the global economy, but the fastest-growing one.”
The survey also found that a growing number of investors are turning to strategic beta funds within the EM segment of their portfolio to enhance returns – 54% of respondents reportedly use strategic beta funds in their portfolios, with the primary reasons for doing so to lower overall fees (28%) and access a specific factor (26%).
Of those using strategic beta funds, 58% of respondents use strategic beta funds as a complement or satellite to a benchmark exposure or to an active manager
“While strategic beta adoption has moved more quickly in other regions, we have found that EM investors who have embraced strategic beta have seen outperformance at a lower expense,” Zeitoun added. “We are encouraged to see that 58% of respondents use strategic beta as a complement to a benchmark exposure or to an active manager.”
The Columbia Threadneedle Investments Emerging Market Investor Sentiment Survey polled 75 financial advisors and professionals, with over 66% managing more than $100m in assets.
Source: Columbia Threadneedle.
Columbia Threadneedle offers a range of US-listed strategic beta emerging market ETFs, including:
Beyond BRICs ETF (BBRC)
Columbia EM Core ex-China ETF (XCEM)
Columbia EM Quality Dividend ETF (HILO)
Columbia EM Strategic Opportunities ETF (EMSO)
Columbia Emerging Markets Consumer ETF (ECON)
Columbia Emerging Markets Core ETF (EMCR)
Columbia India Consumer ETF (INCO)
Columbia India Infrastructure ETF (INXX)
Columbia India Small Cap ETF (SCIN)