Emerging Markets: Why Your Active Manager May Be Underperforming

November 10, 2022 | David Hernandez, CFA, Director of Traditional Manager Search, Catherine Callaghan, Associate Research Analyst, Julia Sheehan, Associate Research Analyst

2022 has been a challenging year for investors as both bonds and equities have produced substantial losses. This unusual environment is the product of a kaleidoscope of macro headwinds that have unfolded throughout the year. Against this backdrop, active emerging markets equity managers have generally failed to protect to the downside, with the average manager underperforming the index year to date through September.

There are several potential reasons why active managers have struggled in 2022. The Russian invasion of Ukraine in February caught most market participants off guard and resulted in substantial losses. China’s underperformance relative to the broader index has also served as a headwind for many investors. China is the largest exposure in the MSCI EM Index at 31% and has been challenging for managers to navigate this year given the country’s Zero-COVID Policy, property sector struggles, and negative investor sentiment amid geopolitical tensions. And lastly, the factor environment has dramatically shifted this year, with both Growth and Quality underperforming the broad benchmark. This newsletter further explores the impact that the underperformance of Quality has had on active manager returns this year.

Read > Emerging Markets: Why Your Active Manager May Be Underperforming

 

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.