Emerging market small-cap (EMSC) equities are a distinct slice of the market offering opportunities for certain investors, using the right methods. We believe that employing an active, quantitative investment process with robust breadth of information is the optimal approach to capitalizing on these opportunities.
The world is changing and the emerging market growth story over the last few decades has been a key story of the global economy. After a couple of years of declining growth as compared to developed economies, the trend is set to change in 2023 with emerging market growth reaccelerating. Investors routinely make allocations to small-capitalization companies in developed markets, but often ignore their emerging market counterparts, despite the potential return enhancement and diversification benefits they can offer. While there is much to like about emerging market large-caps, the universe is now driven more so by global growth than economic growth in emerging markets, whereas small-cap names have greater exposure to domestic growth. Systematic Equity Team thinks it is time investors consider making an allocation to emerging market small-cap stocks — it is an area of the market that we believe offers the most direct avenue to the emerging market growth story.