Quick Take: Navigating the EM Value Rotation

Authored by

  • Kurt Livermore, CFA

    SVP, Portfolio Manager

  • Joe Ritter, CFA

    VP, Product Strategist

 A Decade Spent Chasing Growth

  • Over the past decade, as growth outpaced value, many EM investors favored growth-oriented strategies (top chart). This was part of a larger phenomenon that we have characterized elsewhere* as a “one factor bet” on growth.

  • During that period, many EM investors dismissed value outright, leaving it for dead. As the wave of speculative excess toward growth has dissipated, many investors are once again embracing value. Wariness remains as value’s protracted underperformance continues to cast a shadow.

A Prudent Approach to Value

  • For investors who abandoned value, we believe reengaging makes sense. But with enormous differentiation in value investing approaches, some are far better conceived than others. 

  • We believe these “rules of the road” are a practical guide:

  • Rather than try to time value, it should be a consistent part of the investing process. The value spreads in the middle chart illustrate the challenge investors face when trying to determine a proper entry point—especially since 2012.   

  • Value signals work best in a more balanced framework that includes other important criteria like the sustainability of earnings and forward-looking growth prospects. A “one factor bet” on any signal (bottom chart) is likely to result in exposure to unintended risks.

  • Commoditized value implementations are vulnerable to myriad unintended risks, including sector and overall market exposures.

 

 

*Reassessing Emerging Market Equities
**eVestment Global Emerging Markets All Cap and Large Value and Growth Universes

A Decade Spent Chasing Growth

Emerging Markets Value Spreads

Commoditized Implementations Embed Unintended Risks

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Source: Acadian analysis, MSCI and eVestment data. For illustrative purposes only. Investors have the opportunity for losses as well as profits. Past performance is no guarantee of future returns. Index Source: MSCI Copyright MSCI 2022. All Rights Reserved. Unpublished. PROPRIETARY TO MSCI. eVestment and its affiliated entities (collectively, "eVestment") collect information directly from investment management firms and other sources believed to be reliable; however, eVestment does not guarantee or warrant the accuracy, timeliness, or completeness of the information provided and is not responsible for any errors or omissions. Not for general distribution. All categories not necessarily included; Totals may not equal 100%. Copyright 2012-2022 eVestment Alliance, LLC. All Rights Reserved."

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