The fragile state of emerging markets creates a strong case for employing specialist investment managers, according to Lonsec.
With 2013 a "challenging" year for the space, marked by the shadow of the US tapering strategy and prevailing question marks over emerging markets with current account deficits or slow growth, the research house's 2014 Global Emerging Markets and Regional Equities Sector Review said investors will need a savvy approach in 2014.
Lonsec said there is still value in emerging markets, but it had to be delicately managed by those with deep knowledge in the space, as opposed to traditional global equities managers.
It also advocated an active investment approach over a passive one.
"There was a large dispersion of performance among active emerging market managers over the year, with decision-making around holdings in the ‘Fragile Five' economies having a particularly strong bearing on investor returns," Steven Sweeney, Senior Investment Analyst at Lonsec and principal author of the report, said.
"This highlights the importance of managers supplementing their bottom-up research process with a consideration of ‘top down' or macro factors within the applicable investment process."
"Our higher rated managers will tend to be singularly focused on this asset class. They will have people on the ground in emerging markets and/or a substantial program of company visits, and will not see emerging markets as a bolt-on to other strategies."
