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Emerging Market Investing: A Multi-Asset, Granular, and Dynamic Portfolio Approach

Josh Davis, Grace (Tiantian) Qiu, German Ramirez, Helen Guo, Ding Li and Zhihui Yap
The Journal of Portfolio Management Emerging Markets 2022, jpm.2022.1.355; DOI: https://doi.org/10.3905/jpm.2022.1.355
Josh Davis
is a managing director in Client Solutions and Analytics at PIMCO in Newport Beach, CA
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Grace (Tiantian) Qiu
is a senior vice president in the Total Portfolio Policy & Allocation (TPPA) group at GIC in Singapore
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German Ramirez
is a vice president in Client Solutions and Analytics at PIMCO in Newport Beach, CA
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Helen Guo
is an executive vice president in Client Solutions and Analytics at PIMCO in Newport Beach, CA
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Ding Li
is a senior vice president in the Total Portfolio Policy & Allocation (TPPA) group at GIC in Singapore
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Zhihui Yap
is a vice president in the Total Portfolio Policy & Allocation (TPPA) group at GIC in Singapore
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Abstract

Investors seldom include emerging markets in their strategic asset allocations. The authors argue that much of this skepticism is due to a period of weak returns, exacerbated by the suboptimal construction of the traditional market-cap benchmarks. Such indexes concentrate risk in single countries, are inconsistent across asset classes, and do not reflect the fundamentals of the underlying economies. Hence, the authors propose an asset allocation framework comprising two modules. The first module constructs a portfolio with balanced risk targeted across regions, countries, and asset classes. By geographically balancing risk, the portfolio is less vulnerable to the idiosyncratic shocks prevalent in emerging markets. Moreover, the resulting portfolio overweights lower-volatility bond markets, which not only exhibit higher risk-adjusted returns but are also less correlated with riskier assets. The second module introduces tilts based on expected returns within a tracking error budget. The authors demonstrate the benefit of incorporating expected return assumptions via systematic value- and carry-based tilting.

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The Journal of Portfolio Management: 48 (5)
The Journal of Portfolio Management
Vol. 48, Issue 5
April 2022
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Emerging Market Investing: A Multi-Asset, Granular, and Dynamic Portfolio Approach
Josh Davis, Grace (Tiantian) Qiu, German Ramirez, Helen Guo, Ding Li, Zhihui Yap
The Journal of Portfolio Management Jun 2022, jpm.2022.1.355; DOI: 10.3905/jpm.2022.1.355

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Emerging Market Investing: A Multi-Asset, Granular, and Dynamic Portfolio Approach
Josh Davis, Grace (Tiantian) Qiu, German Ramirez, Helen Guo, Ding Li, Zhihui Yap
The Journal of Portfolio Management Jun 2022, jpm.2022.1.355; DOI: 10.3905/jpm.2022.1.355
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  • Article
    • Abstract
    • LITERATURE REVIEW
    • TRADITIONAL BENCHMARKS IN EMERGING MARKETS
    • INTRODUCING THE PORTFOLIO CONSTRUCTION FRAMEWORK
    • BRINGING IT ALL TOGETHER: A CASE STUDY COMPARING THE ADVOCATED AND TRADITIONAL APPROACHES
    • CONCLUSION
    • ENDNOTES
    • REFERENCES
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