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Emerging market debt: passive management on the rise

Emerging market debt: passive management on the rise

Emerging Markets Debt (EMD) is one of the most rapidly evolving asset classes in investment markets. Despite considerable developments over the years, investor attitude remains focused on perceptions and assumptions that are too often rooted in the past. It is worth highlighting some of these developments at the outset: (1) EMD has become a large, diverse and relatively liquid universe and (2)the market is now about US$4 trillion in size, with a mix of local and hard currency issues and a well-developed corporate market. The increasing breadth and depth of the market has enhanced liquidity. This evolution has created opportunities that investors have arguably been slow to appreciate and fully participate in. And that reluctance has not been without its rationale. Inefficiencies and volatility remain high — factors that would typically favour an active approach — but possibly too high for active managers to consistently deliver excess returns. However, intelligent indexed approaches that aim to capture this complex beta in a consistent and cost effective manner are available and have been winning market share […]