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.
Why do mutual funds underperform? New research from the University of Sydney reveals that at least 55% of fund performance is attributable to luck, not skill. Worse, luck actively predicts future underperformance: lucky funds attract inflows, grow too large, and lose their capacity to generate returns. Morningstar's five-star funds significantly underperform one-star funds in subsequent periods. Stop chasing yesterday's winners and own the market at low cost.
Robin Powell
Jan 57 min read
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