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Published on September 25, 2025
Denise St. Ivany:
Alex, so happy to chat with you.
Alex Freyeisen:
Thank you, Denise. Happy to be here.
Denise St. Ivany:
Emerging markets (EM) are outperforming US equities year to date and drawing increased attention from investors, even as trade policies have shifted. So, given the uncertainty around tariffs and global trade, what factors make emerging markets an attractive investment opportunity? Is now a good time to invest in emerging markets, or should investors wait?
Alex Freyeisen:
I think we have two key catalysts for EM that we've essentially been waiting for for a decade plus now: one, a weaker dollar, and two, improving EM fundamentals. And if you think about a weaker dollar for a second, EM offers one of the best exposures in a weaker US dollar environment. Even after the US dollar weakness we've seen this year, we think there's a lot more to go. Performance has tended to go up and down in very long cycles. And the dollar has essentially been in an up cycle since the global financial crisis. We also have structural drivers for emerging markets – from population growth to the artificial intelligence (AI) boom – that I think are going to be transformational for EM populations and economies and help drive returns in the years to come. And finally – and we never lead with this point because it's been true for a number of years now – EM does have valuation buffers that the US markets don't have. So, again, we have a weaker dollar, improving fundamentals, structural drivers, and, ultimately, valuations that set you up for strong returns going forward relative to domestic markets.
Denise St. Ivany:
Considering the factors you just discussed, do you think investors should approach EM as a whole, or are there particular sectors or regions that you believe offer more attractive investment opportunities?
Alex Freyeisen:
Unless the idea is to play EM cyclically, I would generally advocate for active management and being very selective. As regards active management, if one considers emerging markets as an asset class, it's one of the few areas where the average active manager has been able to deliver positive excess returns. That’s not something that can be said in the US.
That said, as far as we're concerned, we're very selective. We don't buy “EM,” by the way. You can’t get a plane ticket to EM. We buy very select EM companies and express these convictions meaningfully in the portfolio. A lot of the exposure currently in the portfolio is in semiconductors, which offer ways to participate in the growth of compute around us , with AI being an application of that. I think it's going to be a tailwind for the asset class for the years to come from Asia's powerhouse semiconductor firms, and on this front, I think South Korea and Taiwan are key stories. South Korea has an additional driver in the form of corporate governance reform, something we've seen in Japan for the last four or five years. It's obviously early days. There's going to be a number of fits and starts on the corporate reform journey. It's not going to be a straight line, but it's really encouraging. South Korea is also one of the cheapest markets in the EM context and is a key exposure in the portfolio.
India is quite underweighted in our portfolios at the moment, but it's an area of incremental research for us, where we're looking for ideas. The long-term structural story for India is strong, from the demographic dividends to infrastructure development. Obviously, recent news flow around tariffs has been an additional headwind, on top of the slowing earnings growth and rich valuations, which have presented a challenge for us to find ideas historically. But again, the long term is quite attractive, in our view.
There's a lot of innovation happening in China, but there, again, one has to be very selective. There's heavy competition in a lot of industries in China. And there's already a high degree of investor enthusiasm in the areas that are actually interesting, be it China IT or biotech. So again, from a valuation standpoint, we are a bit more cautious on these hot areas, and instead prefer to stick with the larger consumer-facing tech names there, which are some of the best ways to play AI at the moment. And outside Asia, we're interested in Latin American markets, which are quite cheap. But again, you have to allocate the risk budget here carefully because these are big markets that have been historically quite volatile. But these are markets with a high level of real rates, where central banks should be able to ease conditions and help their economies going forward.
Denise St. Ivany:
So how should investors find these stocks? Many don't have the background, expertise, or time to learn all the key players in each market, so what can give them an edge in investing in EM equities?
Alex Freyeisen:
There are 20+ countries and more than 1,300 stocks in the MSCI Emerging Markets Index benchmark. Each country has its own policy, politics, and ethics. There's a lot of daily news flow that can be both overwhelming and distracting. Our edge as a team really comes from, first and foremost, being very focused. We don't think we need to have a differentiated view on every single company in the index. We really focus on businesses that we think we can understand well and we can own for the long run.
For many years, the team has been very stable. It’s a very experienced team. In fact, it is the same team that managed the portfolio since 2006. And we have really benefited from being patient investors, keeping our eyes on the ball, not being distracted by what's happening on a daily basis in one country or another, keeping a long-term focus on companies' fundamentals, emphasizing businesses that have a competitive advantage, what we call “franchise durability,” and buying these businesses at a discount to our intrinsic value estimate. And, if you actually think about it, our approach is not too dissimilar from the way Warren Buffett manages money, which is buying great franchises at a good price, building a sizable position in these businesses, and owning them for the long run, right? It's worked for him, and it's really working for us as well.
Denise St. Ivany:
So, Alex, your team has a long history of investing in emerging markets, and the performance this year has been strong. But let's talk about the future. I'd love to hear what your team is most excited about for the future.
Alex Freyeisen:
I think that right now there's a really good opportunity with our semiconductor companies, as we think the market continues to “trade the cycle” in these names, and by that I mean, historically, these names have been characterized with high earning cyclicality, which has essentially contributed to the above-average beta for these stocks and led to the lower valuations. This is true whether we talk of companies like Hynix or Samsung Electronics or Taiwan Semiconductor Manufacturing. We believe the structural tailwinds like AI and digitalization will help re-rate these stocks going forward. So there's a little bit of that tug of war between these stocks historically being fairly cyclical, based on the demand for chips from traditional tech demand, and now with AI, we think this is going to become much more structural. So we think the through-cycle profitability is going up at the same time that the valuations we ascribe to these companies should be higher.
Denise St. Ivany:
Well, it's clear there are considerable opportunities, but capturing them requires expertise that only active managers can really provide in navigating these ever-changing landscapes. We really appreciate you being here and taking the time to speak with us today. Thank you, Alex.
Alex Freyeisen:
Absolutely. Thank you, Denise.
Learn more about how our Emerging Markets Equity Team put their views into practice our Focused Emerging Markets Equity ETF (EMEQ). This ETF provides access to the team’s time-tested investment philosophy in an actively managed portfolio of 35-60 stocks. These high-conviction investment ideas seek to capture long-term secular growth opportunities in emerging markets."
In April 2025, Macquarie Group Limited and Nomura Holding America Inc. (Nomura) announced that they had entered into an agreement for Nomura to acquire Macquarie Asset Management’s US and European public investments business. The transaction is subject to customary closing conditions, including the receipt of applicable regulatory, client, and shareholder approvals. Subject to such approvals and the satisfaction of these conditions, the transaction is expected to close by the end of 2025.
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Foreign and emerging markets risk is the risk that international investing (particularly in emerging markets) may be adversely affected by political instability; changes in currency exchange rates; inefficient markets and higher transaction costs; foreign economic conditions; the imposition of economic or trade sanctions; or inadequate or different regulatory and accounting standards. The risk associated with international investing will be greater in emerging markets than in more developed foreign markets because, among other things, emerging markets may have less stable political and economic environments. In addition, there often is substantially less publicly available information about issuers and such information tends to be of a lesser quality. Economic markets and structures tend to be less mature and diverse, and the securities markets may also be smaller, less liquid, and subject to greater price volatility.
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