They took the risk, and they reaped the reward. That’s the conclusion of plan sponsors that invested in emerging markets over the past few years.
Nearly 60 percent of respondents say they invest some portion of their portfolios in emerging markets, though most limit their exposure to 5 percent or less of their assets. (Nearly 15 percent say that their emerging-markets exposure is higher now than it was two years ago, mostly as a means to increase the diversity of their investments.) Of those funds that have put money into emerging markets, 46.3 percent say their investments in the asset class have outpaced the performance of their benchmark, in most cases the Morgan Stanley Capital International emerging-markets free index.
More than 8 percent of those funds that do not currently invest in the asset class intend to do so over the next 12 months. Of the large swath of funds that avoid emerging-markets investments altogether, 68.2 percent say high risk is the reason. A further 6.8 percent cite a lack of expertise.
Funds that do invest in the asset class acknowledge that they need help to do so: 98.8 percent of plan sponsors hire an external manager to run at least some of their emerging-markets investments. Seventy-seven percent actively manage all of their emerging-markets holdings.
Funds say they invest in emerging markets either by picking individual countries or sectors: 41.2 percent by country and an equal number by industry sector on a global basis. Most funds prefer to invest in equity rather than debt - 67.1 percent say they invest in stocks, and just 7.3 percent choose to put their money into debt. The remaining 25.6 percent of those polled say they invest in both.
What percentage of your total assets is in emerging markets?
None 40.6%
1 to 5 percent 50.7
6 to 10 percent 6.5
11 to 15 percent 2.2
More than 15 percent 0.0
How does that compare with two years ago?
Substantially more 3.1%
Somewhat more 11.5
About the same 74.8
Somewhat less 9.9
Substantially less 0.8
If you have increased your emerging-markets holdings in the past two years or plan to, what one reason best explains why?
Looking for more diversity 50.0%
Superior long-term returns 16.7
Have grown more comfortable with emerging markets 10.0
Other 23.3
What percentage of your emerging-markets portfolio is actively managed?
100 percent 77.0%
75 to 99 percent 3.4
50 to 74 percent 2.3
25 to 49 percent 5.7
1 to 24 percent 1.1
None 10.3
How does that compare with two years ago?
Substantially more 6.7%
Somewhat more 1.1
About the same 88.8
Somewhat less 3.4
Substantially less 0.0
What portion of your emerging-markets holdings is managed internally?
100 percent 1.1%
75 to 99 percent 1.1
50 to 74 percent 1.1
25 to 49 percent 1.1
1 to 24 percent 0.0
None 95.5
Where do you invest in emerging markets?
Debt 7.3%
Equity 67.1
Both 25.6
What performance benchmark do you use for your emerging-markets investments?
MSCI emerging-markets free index 72.3%
Another standard index 16.9
Performance of your peers 2.4
Other 8.4
How does the performance of your actively managed emerging-markets portfolio compare with that of your benchmark?
Substantially better 11.3%
Somewhat better 35.0
About the same 37.5
Somewhat worse 13.8
Substantially worse 2.5
How do you invest in emerging markets?
By country 41.2%
By region 14.7
By industry sector on a global basis 41.2
By sector on a regional basis 2.9
If you own emerging-markets stocks or debt, do you treat them as a class separate from your international holdings?
Yes 32.9%
No 67.1
If you do invest in emerging markets, how long have you invested in them?
Less than a year 4.9%
Between one and three years 26.8
More than three years 68.3
If you don’t invest in emerging markets, do you intend to do so in the next 12 months?
Yes 8.3%
No 91.7
If you don’t invest in emerging markets, what is your reason?
Lack of expertise 6.8%
Lack of market transparency 4.5
Risk 68.2
Other 20.5
If you do invest in emerging markets, what do you think is the status of your portfolio?
Overexposed to emerging markets 4.9%
Sufficiently exposed 85.2
Underexposed 9.9
The results of Pensionforum are based on quarterly surveys of a universe of 800 corporate and 250 public pension plan sponsors. Because of rounding, responses may not total 100 percent.
