The Case for Emerging Markets Small Cap Value

Emerging Markets Small Cap Value Equities

Summary

  • Emerging markets (EM) small cap value is an attractive asset class for long-term, value-oriented macro investors.
  • EM equities and particularly EM small cap value, have lagged for the past ten years and are poised for a return to their longer-term strong performance.
  • Investors need to carefully weigh coronavirus, ESG, financial reporting, currency, political and trade risks.

My approach as a passive investor is to buy into major asset classes via index funds and hold them for a long time. I maintain a relatively stable long-term Strategic Asset Allocation regardless of market environment. One of my favorite asset classes is EM small cap value, which combines two favorable investing factors.

While I believe this alone warrants a measured position, recent underperformance, potential reversion to the mean, attractive valuations and long term fundamentals make the asset class even more attractive. Screening reveals my top three ETFs for investing in this sector. There are significant risks, but patient, long-term investors have an opportunity to earn generous rewards.

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