An Emerging Markets Boom. A Model Portfolio that Benefits

The MSCI Emerging Markets Index is up nearly 9% to start 2021, and with that strong performance come questions from clients about revisiting developing economies. Advisors can meet that demand with model portfolios, including the Emerging Markets Multi-Factor Portfolio. “This model portfolio is designed for investors with a long-term horizon looking for exposure to a broad universe of Emerging Market equities primarily using factor focused ETFs.

Source: An Emerging Markets Boom. A Model Portfolio that Benefits

The selected ETFs provide certain factor tilts that have the potential to generate excess return relative to comparable cap-weighted benchmarks over longer-term holding periods. The strategies may use both WisdomTree and non-WisdomTree ETF,” according to WisdomTree.

This model portfolio is relevant at a time when investors are allocating more to emerging markets funds.

“Investors have recently favored emerging market stocks over the those in the U.S. That is a reflection of their confidence in the global economy’s recovery, given that those stocks typically perform well when growth picks up steam,” reports Jacob Sonenshine for Barron’s. “A net $5.7 billion flowed into emerging market stocks this week, according to Bank of America strategists.”

Covid-19 put the hammer down on emerging markets, just as the group was getting 2020 started on the right foot.

Emerging markets equities are now turning higher, and many market participants are bullish on the prospects for the asset class to start 2021. Ongoing positive sentiment in the emerging market as an asset class has attracted greater attention among investors. Moreover, given the extended low-rate environment, many income seekers are turning to alternative sources of yield.

“These capital-flow and price moves reflect a global economy that is bouncing back from the pandemic. Covid-19 vaccine distributions are beginning to make it possible for businesses to reopen, while government spending in much of the world has kept cash levels high for households and small businesses,” according to Barron’s. “The effect is that there is likely to be pent-up demand for the goods and services reopening business can offer. The knock-on effect could be a virtuous cycle of rehiring and increasing consumer spending.”

Market watchers say after 10 years of lagging behind the United States, emerging markets may finally be ready for prime time as valuations and a rebounding global economy are looking positive.

For more on how to implement model portfolios, visit our Model Portfolio Channel.