Most investors either ignore emerging markets or hand their money to active managers who underperform. Academic research points to a better approach: factor investing in emerging markets, targeting the company characteristics that have persistently driven higher returns.
Active fund managers claim they earn their fees when markets fall. New Morningstar research spanning 26 years tests this claim. The findings: active funds in downturns do outperform more often, but markets rise 80% of the time, swamping any advantage. When COVID and 2022 stress-tested the theory, most active managers failed to protect investors. The promised shelter turns out to be little more than a coin flip.
