Emerging Markets Equities

Investments in the emerging markets (EM) are promising in the long term, but often volatile. With the broadly diversified MinRisk EM strategy, Quoniam offers investors a risk-reduced entry into the investment opportunities of emerging markets.

Many European investors are still mainly invested locally or exclusively in the large industrialised nations. However, not engaging in emerging markets can be a missed opportunity for several reasons.

First, the emerging markets have benefited greatly from globalisation in recent decades. Per capita incomes have risen with the expansion. Additionally, the positive demographic factors in most emerging markets point to their growing importance.

Challenges of investing in emerging markets
- Volatility: Emerging markets are often characterised by political instability and have higher levels of inflation and currency volatility than developed markets. The volatility of share prices is usually higher than in the developed markets.
- Cluster risks: The share of technology stocks is particularly high, amounting to more than 20% in the benchmark index. The top 10 stocks also amount to more than 20%.
Reasons for emerging markets
- High growth: emerging countries are growing faster than developed countries. The share of global GDP has grown to 58% (source: IMF).
- Favourable valuation: The current price-earnings ratio of emerging markets is at the lower end of the valuation range (source: Bloomberg). Analysts expect further growth in corporate profits (source: IBES).
- Diversification: More than 1,000 liquid securities in the investment universe offer scope for diversification.

The challenges highlighted show that investing in emerging markets is associated with higher risks.

This means: To benefit from an EM market environment with above-average risk, a risk mitigating approach is extremely important. Therefore, our investment strategy is based on controlled risk management.

The Quoniam solution

The main objective of the Quoniam MinRisk EM strategy, which was launched in 2010, is to reduce risk in terms of absolute risk, i.e. volatility. Therefore, not only the deviation relative to the market-capitalised benchmark is controlled, but also the absolute loss of an investment. This means that in the event of a stock market correction, risk reduction is the focus of risk management.

The investment process is systematic and data-based. In principle, a defensive portfolio (MinRisk) is designed regardless of market capitalisation. Priority is given to stocks that have a favourable valuation, high quality and attractive sentiment.

The defensive strengths of the MinRisk strategy become particularly apparent during crises or market corrections. The aim is to achieve an attractive return over a complete market cycle.

Your advantages

Solid emerging market equities with low volatility

- The systematic selection process favours stocks with solid financial ratios, a favourable valuation and positive sentiment.
- Low volatility equities stabilise the portfolio return in the MinRisk approach.
- The portfolio consists of 250-300 stocks, with a focus on diversification across countries and sectors.

“In order to benefit as an investor from the overall positive starting position in an above-average risk environment, a risk reduction concept is extremely important.”

Mark Frielinghaus, CFA, Portfolio Manager Equities

Conclusion

Participate in favourable valuations

- The Quoniam Emerging Markets Equities MinRisk strategy is an interesting addition for global investors. The strategy combines the growth trend of emerging markets with smart individual stock selection.
- The emerging markets are currently favourably valued, are gaining economic importance in the long term and continue to offer diversification benefits.
- For many investors, a risk-reduced investment approach such as the Quoniam EM MinRisk strategy can be interesting as a risk-reduced entry point.
- The diversified portfolio significantly reduces concentration risks compared to the index, offers a reduction in price losses and enables investments in companies that participate in local growth.
- Since inception, the strategy has generated solid absolute returns due to its defensive risk positioning and has outperformed the benchmark as well as the peer group over one and three years (first quantile, source: eVestment).
- Quoniam has 24 years of experience in managing systematic equity portfolios and has been managing emerging markets mandates since 2010.

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Navigating emerging markets with a MinRisk strategy

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