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Emerging Markets

Helping capture emerging market growth with confidence

Significant growth potential

The importance of emerging markets in the global economy has increased significantly, driven in large part by China. In 1980 emerging economies represented around 20% of global GDP. Today their share is 40%¹.

Their capital markets have developed and deepened during this period, but their economic importance remains under-represented.

Emerging markets represent around 23%² and 18%³ of tradeable equity and debt markets respectively, but only 13%⁴and 6%⁵of the most widely-used equity and debt benchmarks. This anomaly cannot be ignored.

Emerging markets are changing

We expect emerging markets to continue to grow faster than developed economies. Industrialisation, urbanisation and middle class wealth creation should result in a deepening and liberalisation of capital markets, so that over time they will better reflect the economic opportunity and importance of the emerging world.

Rising wealth levels within emerging markets are likely to contribute to increased demand for emerging market equity and debt and lead to the development of nascent savings markets.

An active investment approach may be best

We believe emerging markets are inefficient and poorly researched.

State-controlled companies still represent a significant weight in emerging equity indices. The performance of these companies can be heavily influenced by sudden changes in government policy. An active approach which draws on deep local resources is better able to navigate such events.

Similarly, a great deal of qualitative input and local knowledge is required to identify the environmental, social and governance (ESG) issues which can create significant performance differential in emerging markets.

In emerging market debt, not only have passive ETFs tended to underperform their benchmarks, the most widely used indices are narrowly focused and exclude a large portion of the opportunity set. Active management provides access to the full range of emerging market debt.

Why Schroders

We have almost 130 emerging market investment professionals in 14 locations worldwide covering a range of emerging market assets*. Our specialist teams have developed their own investment processes, free from a centrally-developed “one size fits all” approach. This means there is considerable intellectual debate between different teams, who will challenge and scrutinize each other’s views. Together with our deep roots in in many emerging countries, including a number of local-to-local business units, joint ventures and partnerships, we are in a pre-eminent position to better manage your clients’ investments and deliver the outcomes our clients require.

A world of choice

We do not just specialize in one area. Our expertise spans equity, fixed income, multi-asset, quantitative investment and private assets. This means we offer one of the broadest selections of strategies to help your clients capture the growth opportunity in emerging markets; there are options to suit a range of client investment goals.

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What are the risks?

Past performance is not a guide to future performance and may not be repeated.

The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall.

Emerging markets generally carry greater political, legal, counterparty and operational risk.

¹Source: IMF as at end December 17. ² Source: Factset, MSCI as at end of December 2017. ³Source: Bank of America Merrill Lynch Global Research, December 2016 ⁴ MSCI AC World. Source Factset, MSCI as at end December 2017 ⁵Bloomberg Barclays Global Aggregate. Source: FIA as at end December 2017

*Source: Schroders as at 30 September 2019

Important information

The views and opinions contained herein are those of the authors, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This webpage is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the webpage when taking individual investment and/or strategic decisions. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. The data contained in this webpage has been obtained from sources we consider to be reliable. No responsibility can be accepted for errors of fact and the data should be independently verified before further publication or use. The sectors shown are for illustrative purposes only and not to be considered a recommendation to buy or sell. Exchange rate changes may cause the value of any overseas investments to rise or fall. All investments, domestic and foreign, involve risks including the risk of possible loss of principal. Investing in equities involves risk considerations, including market risk, prospects of stocks in the portfolio, changing interest rates, and real or perceived adverse competitive industry conditions. Investing in bonds may include interest rate, credit, inflation/deflation risk, mortgage and asset-backed securities, U.S. Government securities, and liquidity risks, to varying degrees. Investing overseas involves special risks including among others, risk related to political or economic instability, foreign currency (such as exchange, valuation, and fluctuation) risk, market entry or exit restrictions, illiquidity and taxation. These risks exist to a greater extent in emerging markets than in developed markets. The use of derivatives involves risks different from, or possibly greater than, the risks associated with investing directly in the underlying assets. Private assets are intended only for qualified and/or sophisticated investors and carry special risk considerations, including illiquidity risk, wide differences in valuations, the use of leverage, and higher credit risk than traditional assets. Asset allocation and diversification cannot ensure a profit or protect against loss of principal. No investment strategy, capability or technique can guarantee it will achieve its stated objective. In North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc providing asset management products and services as a US SEC registered investment adviser and in the capacity of Portfolio Manager with the securities regulatory authorities in Canada. For all other users, this content is issued by Schroder Investment Management Limited, 1 London Wall Place, London. EC2Y 5AU. Registered No. 1893220 England. Authorized and regulated by the Financial Conduct Authority.

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Schroders is a world-class asset manager operating from 37 locations across Europe, the Americas, Asia, the Middle East and Africa.

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Schroder Investment Management North America Inc. (“SIMNA”) is an indirect wholly owned subsidiary of Schroders plc and is a SEC registered investment adviser and registered in Canada in the capacity of Portfolio Manager with the Securities Commission in Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, Quebec, and Saskatchewan, providing asset management products and services to clients in Canada. Schroder Fund Advisors, LLC is a wholly-owned subsidiary of SIMNA and is a FINRA registered limited purpose Broker/Dealer and is registered in Canada in the capacity of Exempt Market Dealer with the Securities Commissions of Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Ontario, Quebec, Saskatchewan, Newfoundland and Labrador.

Schroder Adveq Management US Inc. (“Schroder Adveq US” or “Schroder Adveq” herein) is registered as an investment adviser and provides asset management products and services to clients in the United States and Canada. Schroder Fund Advisors LLC (“SFA”) markets certain investment vehicles for which Schroder Adveq US is an investment adviser. SFA is an affiliate of Schroder Adveq US and is registered as a limited purpose broker-dealer with the Financial Industry Regulatory Authority. Schroder Adveq US is an indirect, wholly-owned subsidiary of Schroders plc. For more information, visit www.schroderadveq.com

Schroder Secquaero (formerly Secquaero Advisors AG) is a Zurich-based, wholly owned subsidiary of Schroders plc, and provides non-discretionary advice to certain strategies, including Insurance-linked securities, marketed in North America.

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Emerging Markets

Helping capture emerging market growth with confidence

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