(The following statement was released by the rating agency)
Link to Fitch Ratings' Report: Emerging Markets: From Top Down
PARIS/LONDON, March 26 (Fitch) Fitch Ratings says that a less
technical and macroeconomic environment in emerging markets
opportunities for active stock and bond investors.
Research by Fitch shows that actively managed EM equity funds
passive funds by 3% since December 2012. Furthermore, exchange
(ETFs), which take a passive investment approach and track the
MSCI EM index,
have underperformed their benchmark by over 4%, demonstrating
in replicating an EM index in less efficient EM markets.
"Emerging market dynamics are changing. We expect actively
funds to gain traction as EM fund investors exit directional
play and managers
become more selective in bottom-up selection," says Manuel
Director in Fitch's Fund and Asset Manager rating team.
Nevertheless, ETFs remain the preferred option for swift
adjustment of market
exposure. ETF EM assets under management (AuM) represent a
quarter of EM equity
mutual funds but dominated outflows in 2013.
Dispersion, (ie. discrepancies in performance) is more distinct
domestic, single-country EM equity funds than between regional
and global funds.
As a consequence, first quartile single-country funds have
benchmark by over 12% over three years while global equity funds
outperformed by only 2%.
Country risk is becoming a more important driver of performance
both for EM
equities and for credit, as many countries have started to adapt
changing macroeconomic dynamics. The diminishing correlation
observed in 2013 and the impact of policy and government changes
companies have new implications for global EM portfolio
EM corporate bond funds have outperformed other hard currency EM
sovereign) debt funds by over 5.5% since December 2012. Fitch
corporate debt to continue to gain traction as they are more
sovereign issues than government debt.
Fitch considers that superior bottom-up research provide an
advantage for stock
selection. Furthermore, the ability to allocate research
to cover an expanding investment universe is critical. Other key
in EM investing include the ability to get country and theme
taking account of sentiment and technical factors and managing
Fitch is publishing a presentation entitled "Emerging Markets:
Allocation to Company Selection" that provides a summarised
overview of the
stock- and bond-picking developments in EM.
Fund sector research is part of Fitch's on-going commitment to
fund research and
ratings. Fitch's Fund Quality Ratings combine Fitch's experience
fund analysis with rankings and performance data from Lipper, a
company. Fitch's Fund Quality Ratings offer an independent,
assessment of a fund's key performance and risk attributes and
longer-term returns, relative to peer group or benchmarks. The
ratings focus on
the fund manager's investment process, key fund performance
management, and the quality of the fund's operational
Manuel Arrive, CFA
+33 1 44 29 91 77
Fitch Ratings S.A.S.
60, rue de Monceau
+44 203 530 1147
+44 203 530 1079
Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153,
Additional information is available at www.fitchratings.com.
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