Funds of Emerging-Markets Funds on the Upswing
During the week of April 5, there was a pronounced increase in the number of investors looking to funds of funds to gain exposure to emerging markets. Compared with the prior week when no fund of funds investors were targeting emerging markets, last week almost 15 percent were searching for emerging-markets-dedicated funds.
One week is a very short time period from which to draw any serious long-term trends, but it does make sense that investors have begun targeting these types of fund of funds. Investor interest in emerging markets has increased during the past year, however, there is volatility associated with emerging countries’ economies. By diversifying through funds of funds vehicles, investors can have exposure to an array of emerging markets while mitigating the risk of investing in any one specific country.
A wealth advisor in Monaco is pursuing this approach. It is looking for well-known funds of hedge funds that are dedicated to global emerging markets. The reason this investor is looking to funds of funds is two-fold. First, as expected, they allow the firm to gain exposure to various emerging markets such as Latin America, Asia, and MENA. Second, they give the firm exposure to a number of underlying strategies, which currently present good opportunities within the specific country or region it is focused on.
Using a fund of funds approach also makes sense for smaller investors that may not have the resources to conduct due diligence on specialist funds. By investing in funds of funds, they gain the peace of mind that comes with knowing the underlying managers have gone through a rigorous due diligence process by a larger, more capable institution.
In all, based on the increased interest in emerging markets, it makes sense that many investors, particularly smaller ones, have begun looking to funds of funds. These vehicles provide investors with the emerging-market exposure they seek while diversifying their portfolio and minimizing the risk associated with single-manager funds that are targeted with a regional and strategy focus.