As investors seek opportunities outside traditional markets such as the U.S. and Canada, an active management style can prove to be more beneficial. When investing in emerging markets, managers who are on-the-ground typically have greater insight and knowledge of the local investment landscape, especially when compared to managers who operate from a Canadian base.
There are several reasons why on-the-ground managers have a competitive advantage over Canadian asset managers who offer emerging market funds:
- on-the-ground managers live and breathe the local conditions in their respective countries, providing them with a better perspective of the economic and political conditions that are unique to their own country or region;
- They also have firsthand knowledge of emerging market companies and sectors, and can perform onsite visits as well as meet with management teams several times, prior to making investment decisions, whereas a Canadian-based emerging market fund manager might not have this luxury; and
- on-the-ground managers often have access to companies that are only listed locally and may not be widely followed by North American fund managers. This is especially true for smaller, up-and-coming companies whose growth is driven by local trends.
Generating stronger risk-adjusted returns by investing in the emerging markets ultimately comes down to picking the right stocks, in the right sectors. When compared to the developed world, emerging markets offer greater growth potential.
To learn more about investing in actively managed mutual funds, contact your financial advisor today.