Developed and emerging markets continue to merge
The barriers separating developed and emerging market economies are diminishing and this is having a major affect on portfolio construction and choice of benchmark, according to Zenith Investment Partners' 2012 International Shares sector review.
Ever-expanding access to the Internet and the relative ease of travel means a growing number of developed market domiciled companies are generating more revenue from emerging market consumers, while emerging markets are increasing their level of exports to developed market countries, Zenith Investment Partners senior investment analyst Bronwen Moncrieff said.
"Where a company is domiciled is becoming less and less relevant," she said.
"Research is focusing on where a company's source of revenues or target market demand is coming from - not where a company is domiciled or listed," Moncrieff said.
Such a fundamental shift in portfolio construction has also seen a gradual move away from the use of the MSCI World Index to the MSCI All Country World Index, which includes EM markets, the research found.
Moncrieff said an increasing percentage of funds that may have once had a restriction or limit on holding EM domiciled stocks are slowly increasing that limit.
"There may come a time when you don't need to have separate global and emerging market funds - one fund might be able to provide you with exposure to both, in fact many funds now do just that," she added.
For the 12 months to 31 July 2012, the market was challenging for all fund managers, with the MSCI World Ex Australia generating a slight return of 2.3 per cent, the report stated.
"However, for this review, it was the value managers that generally outperformed their core and growth style counterparts over the short, medium and long-term," the review read.
Recommended for you
After introducing its first active ETF to the Australian market earlier this year, BlackRock is now preparing to launch its first actively managed, income-focused ETF by the end of November.
Milford Australia has welcomed two new funds to market, driven by advisers’ need for more liquid, transparent credit solutions that meet their strong appetite for fixed income solutions.
Perennial Partners has entered into a binding agreement to take a 50 per cent stake in Balmoral Investors and appoint it as the manager of Perennial's microcap strategy.
A growing trend of factor investing in ETFs has seen the rise of smart beta or factor ETFs, but Stockspot has warned that these funds likely won’t deliver as expected and could cost investors more long-term.
