Emerging Market Funds Research Articles

GENERATIONAL INVESTMENT PATTERNS IN MUTUAL FUNDS: A COMPARATIVE STUDY OF GENERATION X AND MILLENNIALS

This Master’s thesis examines the investment patterns in mutual funds across two distinct generational cohorts: Generation X and Millennials. The primary aim of this study is to analyze and compare the investment behaviors and preferences between these two groups, focusing on factors such as risk tolerance, investment time horizon, and preferred fund types. Utilizing a mixed-methods approach that combines quantitative data analysis of investment portfolios with qualitative surveys and interviews, this research provides a comprehensive view of how generational differences influence investment decisions. The quantitative analysis involves a statistical examination of mutual fund holdings and transactions sourced from a proprietary database covering the period from 2010 to 2020. Meanwhile, the qualitative component features insights from over 200 individual interviews with representatives of each generation, supplemented by surveys to gauge attitudes towards various investment strategies and market outlooks. Initial findings suggest significant divergences in the investment strategies between Generation X and Millennials. Generation X investors tend to favor income-focused and balanced funds, displaying a preference for stability and long-term growth, influenced possibly by their proximity to retirement. In contrast, Millennials are more inclined towards equity-heavy portfolios and show a greater propensity for embracing emerging market funds and ESG (environmental, social, and governance) themed investments, driven by higher risk tolerance and a longer investment horizon. This thesis not only highlights the distinct investment preferences of these generations but also delves into the sociopolitical and economic factors that might influence these patterns. Furthermore, it discusses the implications of these generational differences for financial advisors, mutual fund managers, and policymakers. By identifying and understanding these generational investment behaviors, industry professionals can better tailor their approaches to meet the needs and preferences of each demographic group, enhancing client satisfaction and engagement. This comparative study contributes to the financial industry’s understanding of demographic shifts and their impacts on market trends, offering valuable insights for developing more targeted and effective investment products and strategies.

The cumulative prospect theory and fund flows in emerging markets

ABSTRACT This study is the first to examine the efficacy of the Cumulative Prospect Theory value of the past return (CPTV) to explain fund flow in emerging markets funds by considering the impact of fund managers’ characteristics and behavioural biases on fund investors’ investment decisions. Besides, this study also investigates the impact of fund investors’ ability to identify fund managers’ skills. The findings suggest that CPTV has a significant and positive association with subsequent fund flow and emerging market funds’ performance. Notably, the study documents a negative relationship between fund flow and fund size and also highlights that newer funds generate greater fund flows. Furthermore, the findings indicate that investors investing in emerging market funds tend to behave differently, allocate money for alpha, and avoid giving distorted income for factor-related returns to fund managers. The results demonstrate that managers’ skill and portfolio concentration decision affects fund flow and CPTV relationships. The findings illustrate that fund managers who concentrate their portfolio and invest in high CPTV stocks tend to generate higher fund flow than their diversified counterparts.

Emerging Trends in Mutual Funds in Asset Management Companies: A Select Study

Emerging market trends are given different types mutual funds that are invest the majority of assets in the stock dominoes in which leads to shows index its performance. These funds provide exposure to stock in like Asian, Latin America, Africa and European market are created emerging trends of various stocks of capitalization. They can be indeed or actively managed fund managers are merchant bankers. These countries are in an emerging growth phase and offer high potential return with higher risk than developing marketing opportunities of the 2020-2023, a roller-coaster ride for everyone including the mutual fund industry. For various reasons, the industry underwent a lot of changes need to design the countries trending markets. Treading market domains of mutual funds can be identified by the market index as provides and are defined by the various characteristics prevailing to the country. The primary investment objective of funds seeks to provide long term capital growth by investing in corporate entities, firm’s requirements through mutual funds. Emerging opportunities of an equity. Which are invest primarily in an aggressively managed portfolio in these market trends of the companies. This fund may also invest a part of its corpus funds in unit of its liquidity requirement from time to time and also the funds does not guarantee/ Indicate assured return, this is the best performing emerging market funds available in the least expense ratio. This is move in the aims at making multi- cap funds true to label and hold a well- diversified portfolio. Most of the multi- cap funds had a large cap bias with almost minimum or no investments in small- cap stocks many fund houses spoke about converting their existing multi cap schemes to ESG funds or Focused funds to avoid the new moderate market trends. According to SEBI new policies multi-cap fund minimum is 25% to equity exposure is 65% no cap limit.

Investing in Emerging Markets: An Empirical Comparative Analysis

Purpose: Investing in emerging markets may present a growing list of opportunities against a backdrop of additional risks because the drivers of returns in these markets are increasingly domestic and decreasingly global. Despite the proliferation of research on the risk involved in investing in emerging markets, very little is known on the distribution of their returns and their maximum expected losses. Therefore, the aim of this study was to fill in this gap.
 Design/Methodology/Approach: A Cramer-von Mises, Watson and Modified value at Risk approach was used on a sample of five emerging and five developed markets from May 11, 2018, to May 11, 2023.
 Findings: The findings revealed no significant difference in the returns distribution between these two markets but a much higher expected loss in emerging markets than their developed counterparts. Although investing in emerging markets may have growing opportunities.
 Implications/Originality/Value: Several strategies can be used to mitigate some of the risks involved. One strategy is to invest in a diversified portfolio of emerging market assets, which can help reduce exposure to individual country and sector risks. Another strategy is to invest in emerging market funds. This study is the first as per the author’s knowledge to provide an empirical comparative analysis between emerging markets and developed markets

Hiding in Plain Sight: The Global Implications of Manager Disclosure

Given the potential for agency conflicts in delegated asset management, and the constant push for disclosure by regulators, we examine a clear potential source of agency conflicts in the mutual fund industry: anonymously managed mutual funds. Using a global sample of mutual funds, we find that 17% of funds worldwide, excluding the US, and 22% of emerging market funds do not disclose the names of their management team. Anonymously managed funds significantly underperform, have lower active share, return gap, tracking error, and higher r2 than funds with named managers. They are more frequent in families with cooperative structures, and in bank affiliated funds. Further examining fund performance and activity around changes in SEC disclosure regulation, we find that both performance and fund activity increases following new regulation that required disclosure of manager names. This is important, as it provides evidence that the underperformance of anonymous teams is related to the disincentive brought on by anonymous management, and not solely due to less skilled managers being kept anonymous.

How ETFs Amplify the Global Financial Cycle in Emerging Markets

This paper examines how the growth of exchange-traded funds (ETFs) has affected the sensitivity of international capital flows to global financial conditions. Using data on individual emerging market funds worldwide, we employ a novel identification strategy that controls for unobservable time-varying economic conditions at the investment destination. We find that the sensitivity of flows to global financial conditions for equity (bond) ETFs is 2.5 (2.25) times higher than for equity (bond) mutual funds. We then show that our findings have macroeconomic implications. In countries where ETFs hold a larger share of the equity market, total cross-border equity flows and returns are significantly more sensitive to global financial conditions. Our results imply that the increasing role of ETFs as a channel for international capital flows has amplified the global financial cycle in emerging markets.

Emerging Market Funds: They May Not Enhance Asset Allocation

This article uses portfolio optimization techniques to determine optimal country allocation in an emerging market (EM) portfolio and compares the resulting performance to the performance of the MSCI Emerging Markets Index (MSCI EM Index) to test how large the spread is between the two returns. In addition, the article analyzes optimal allocation of the EM portfolio alongside a developed markets index when using the MSCI EM Index as a proxy as well as a mean-variance EM index as a proxy for EM exposure. The results indicate that popular EM index fund performance and exchange-traded fund (ETF) performance do not align with theory from 1993 to 2017, with a spread in Sharpe ratios from 0.37 to 0.10 between the mean-variance optimized EM performance and the MSCI EM Index. In addition, the optimal weightings are very different, 50 percent when using the mean variance relative to 0 percent. The article concludes that an equal-weighted EM portfolio may be the best choice for an investor, with a maximum allocation of 30 percent to EMs based on an equal-weighted EM portfolio. TOPICS:Emerging markets, exchange-traded funds and applications, performance measurement, portfolio construction

Fund Manager Performance in Emerging Market: Factor Specialization and Financial Crisis Impact

In the branch of literature dealing with analysis of the consistency of management styles, this paper investigates the relation, between portfolio concentration and the performance of emerging market equity funds. Unlike previous studies, on global and us mutual fund, we focus on emerging markets equity, finding funds with higher levels of tracking error, display lower performance than funds with less diversified portfolios when we don’t take into account specific concentration in holding in different multifactor style. The explanatory power of local models that use local explanatory returns is recently investigated by De Groot et al. (2012), Cakici et. al (2013) and Fama and French (2012). Following same research line, most remarkable findings of this paper, is that the fund picking process only based on the level of track error from a broad benchmark, can contribute to disappointing results when it is not also accompanied, by information about the fund concentration in multiple market segment. According to previous work, overall we found, that local factor market model provide quite good representation of local average returns for portfolios formed on size, and style factors. Our novel in literature, consists in examining emerging market funds both from the perspective of active management and breath of underlined strategies. More as additional analysis with respect to most of previous paper, we also tested the effects of the crisis that we have found that main result has not affected from it.

Fund Manager Performance in Emerging Market: Factor Specialisation and Financial Crisis Impact

In the branch of literature dealing with analysis of the consistency of management styles, this article investigates the relation between portfolio concentration and the performance of emerging market equity funds. Unlike previous studies, on global and US mutual fund, we focus on emerging markets equity, finding funds with higher levels of tracking error, display lower performance than funds with less diversified portfolios when we do not take into account specific concentration in holdings in different multifactor style. The explanatory power of local models that use local explanatory returns is recently investigated by De Groot, Pang and Swinkels (2012), Cakici, Fabozzi and Tan (2013) and Fama and French (2012). Following the same research line, the most remarkable finding of this article is that the fund-picking process, only based on the level of track error from a broad benchmark, can contribute to disappointing results when it is not also accompanied by information about the fund concentration in multiple market segment. According to the previous work, overall, we found that local factor market model provides quite good representation of local average returns for portfolios formed on size and style factors. The contribution of this research is two-fold. First, we examined emerging market funds from the perspective of active management and second, under the effect of strategies mentioned in Huij and Derwall (2011). Moreover, as additional analysis with respect to most of the previous papers, we also tested the effects of the crisis that we found to have not affected the main result.

The performance of US-based emerging market mutual funds

Purpose The purpose of this paper is to examine the performance of US mutual funds that invest primarily in emerging market equities and bonds. Design/methodology/approach The study adopts the Morningstar classification of mutual funds and uses the Lipper US Mutual Fund Database through FactSet to obtain monthly returns and various metrics for emerging market equity and bond mutual funds covering the period from January 2000 to May 2017. Several descriptive statistics for these funds are reported as well as various risk-adjusted performance measures. Alphas are computed for different sub-periods using different factor models to mitigate potential biases. Findings The results show that diversified emerging market funds generate some significant alphas for their investors during the study period. Emerging market bond funds, on the other hand, do not provide any significant positive alphas; mostly alphas are negative. An analysis of sub-period performance suggests that these funds do not consistently provide excess returns, showing great variations from one period to another. Originality/value The emerging market funds provide US investors with an alternative source of exposure for their portfolios. Emerging markets differ from developed markets on a wide range of market and economic characteristics, including size, liquidity, and regulation. This study contributes to the scarce literature on these types of funds and provides a comprehensive performance assessment against various benchmarks during a period that encompasses significant bear and bull markets across the world.

Dry powder and short fuses: Private equity funds in emerging markets

One puzzling feature of domestic private equity (PE) funds in emerging markets is that such funds often have a “short fuse”, i.e., a much shorter lifespan than their developed market counterparts. Based on a simple agency model, we propose an explanation for this puzzle. We show that, under a long fuse, PE managers have incentives to game performance-based compensation schemes by opportunistically timing investments and burning money when early investments fail. Shortening the fuse restricts timing opportunism, but alleviates money-burning incentives only if managerial compensation is sufficiently concavified or the contract stipulates substantial investors' hurdle returns. Both of these options can force managers to concede rents to investors. Thus, managers face a tradeoff between rents and agency costs. In emerging markets, where agency costs are high, managers use a short fuse with incentive compatible compensation schemes to minimize agency costs. In contrast, in developed markets, where agency costs are low, managers use a long fuse to preserve rents. Based on these results, we further draw predictions on fund performance, managerial behavior, and investor rents for both long-fused developed-market funds and short-fused emerging-market funds. We also predict that, when institutional infrastructure in emerging markets improves and when domestic PE managers in emerging markets gain more experience, domestic PE funds in emerging markets will adopt the long-lifespan PE contracts typical in developed markets.

Triage in a Global Financial Crisis: Countries, Sectors, or Stocks?

This research presents new empirical evidence that country allocation decisions are the determining factor of international equity funds’ excess returns, even during a global financial crisis. One hundred equity mutual funds are examined during the turbulent years of 2007–2013, and results show that country allocation is the primary determinant of deviation of an international equity fund’s return from a benchmark return. For emerging market funds, country allocation decisions are especially important during this period. This result provides the foundation and motivation for further research into factors that differentiate country-level equity returns.

Diversification of risk exposure through country mutual funds under alternative investment opportunities

Abstract This paper examines the behavior of time variation in the risk exposure of country mutual funds to the movements of the US and benchmark foreign markets. It uses weekly data on 15 closed end funds and 19 exchange traded funds for the sample period between January, 2001 and December, 2012. Conditional factor models are employed to uncover the time variation in the estimated betas through short window regressions. The findings of the paper indicate considerable time variation in risk exposure of country mutual funds to the US market and foreign market risk factors. The US market betas exhibit greater variation over the sample period than the target foreign market betas. The overall fluctuation in betas for the closed end funds is found to be higher than that for the exchange traded funds, and emerging market funds experience more oscillation in the risk exposure than their developed market counterparts. We also find that a combination of the US macroeconomic state variables and investors’ sentiment significantly predicts future betas.

Active Share and Emerging Market Equity Funds

This paper represents the first specific attempt in the literature to examine the relationship between active share and emerging market equity fund performance. Using a sample of U.S. based diversified emerging market equity funds whose prospectus benchmark is the MSCI emerging market equity index, we find a positive and significant relationship between the average level of a fund’s active share and fund performance. Funds that are more active have significantly better performance than other funds. We find this result to be robust with three different performance metrics over the period 2009-2014. We also find evidence that highly active funds that keep their level of activeness consistent over time have significantly better performance than do funds that change their level of activeness. Finally, we document that a significant number of diversified emerging market funds were closet indexing over the period 2009-2014, but that the percentage of funds that pursue this strategy has been declining.

A performance evaluation of Chinese mutual funds

Purpose – The purpose of this paper is to examine the performance of Chinese mutual funds during the period of January 2000 to July 2013. Emerging market funds provide investors with alternative risk exposure for their portfolios. The Chinese market has developed rapidly and differs from developed markets regarding wide range of market and economic characteristics, including size, liquidity, and regulation. The performance of these funds is investigated by using various risk adjusted measures. The study also compares performances of mutual fund subgroups and explains the factors influencing their performances. Design/methodology/approach – This is an empirical paper using various risk performance measures. These measures include the Sharpe ratio, Information ratio, Treynor ratio, M-squared and Jensen’s α. The data comprises 1,037 funds. These funds are further divided into ten subgroup of funds based on their classification: equity (484); aggressive allocation (95 funds); conservative allocation (18 funds); moderate allocation (85 funds); aggressive bond (92 funds); normal bond (52 funds); guaranteed (29 funds); money market (53 funds); and QDII funds (119 funds). A cross-sectional analysis of fund performance is performed using Sharpe and Jensen’s measures as dependent variables and fund-specific variables (Age, Turnover, Tenure, Frontload, Redemption fees, and Management fees), market-specific variables (P/E ratio, P/B ratio, Market capitalization), and fund types as independent variables. Findings – The findings show that Chinese funds generate positive αs for their investors. The highest return is provided with aggressive allocation funds followed by moderately aggressive allocation funds. The average Jensen’s α is the highest in aggressive allocation funds. QDII funds do not provide significant positive αs; in several instances αs are negative. Further analysis of sub-periods show that Chinese funds do not consistently provide excess returns and show great variations. The study also finds that older funds, funds with higher fees, high price to book ratio, and smaller funds continue to perform better than other funds. Originality/value – This study adds value by focussing on Chinese funds and risk/return characteristics of these funds. The research will further explore factors explaining these returns.

Performance of Technology Sector Hedge Funds in Emerging Markets

We examine the performance of technology sector hedge funds with a special focus on emerging markets. We analyze risk-adjusted returns, alpha determinants, and various provisions of the hedge funds. We find that technology hedge funds show positive risk-adjusted returns on average and that the emerging market tech funds outperform the nonemerging market funds in general. Classified geographically, Eastern Europe funds exhibit the greatest performance and the highest ratio of funds with significant alpha. We also observe that the abnormal returns of emerging market funds are positively associated with their past performance, flow, and incentive fee, but negatively related with size.

Rethinking Exposure to Emerging Markets: Is It Time to Dive Back In?

Emerging markets have lately been the subject of many alarming stories, which are filled with warnings of potentially magnified risks and severe liquidity problems for those who remain invested in such markets. Using a database of 68 emerging-market funds and statistical tools commonly used by the market, this study thoroughly analyzes their performance from various angles. We determine that although investors who had exposure to emerging markets have indeed suffered large losses, the situation doesn’t nearly warrant the current negative hype surrounding emerging markets. Not all asset classes have been affected to the same extent, and although high risks, including liquidity problems, still apply when entering these markets, there are also internal sources of growth and very favorable correlations with developed markets. While some observers continue to call for further pullbacks, this study finds that, on the contrary, favorable current valuations mean that now is the time to increase exposure to emerging markets.

Death, Taxes and Short-Term Underperformance: Emerging Market Funds

Death, Taxes and Short-Term Underperformance: Emerging Market Funds

‘Dreaming with BRICs’

Intertwinements of economic practices with economic knowledge have been of particular interest for sociologists and cultural anthropologists during recent years. This article discusses a particular case of such intertwinements: in 2001, Goldman Sachs economists invented the acronym ‘BRIC’ for grouping together the largest emerging economies – Brazil, Russia, India and China. The economists projected that over the course of 50 years, the BRICs would become the new core of the world economy. This article interprets the BRICs concept as an innovation in the classificatory regimes of finance. These classificatory regimes are understood as persistent cultural constructs. In the domain of international finance, classifications have traditionally been organized according to the distinction of developed and developing economies, with assumptions regarding return expectations and risks attached to this distinction. The BRICs concept alters these classificatory regimes and re-describes a selective group of emerging markets as solid, long-term investment destinations. In order to establish this innovation, the Goldman Sachs economists draw on calculative framings, narrative strategies and metaphorical language. As evidenced by descriptive statistics of portfolio flows, a preliminary analysis of investment discourses and of changes in the emerging market funds industry, Goldman Sachs' expertise on the BRICs indeed seems to have contributed to the emergence of a new cultural circuit of capital of post-emerging market investments to developing economies.

Investigating the role of illiquidity in explaining the UK closed-end country fund discount

In this paper we examine whether the UK closed-end country fund premium is related to the illiquidity of the UK fund or the illiquidity of the country in which the fund invests. We also consider whether emerging market country funds behave differently in terms of their premium and illiquidity to developed market country funds, and in particular whether they offer more stability during the period of the recent financial crisis. We find that country illiquidity plays a significant role in the premium of emerging market funds. However, in developed market funds country illiquidity is not significant. Fund illiquidity, in contrast, is significant for developed market funds but not for emerging market funds. The recent financial crisis has had a marked effect on the premium and illiquidity across both developed and emerging market funds, but emerging market funds seem to have recovered to pre-crisis levels more quickly than funds investing in developed markets.