Insights, The Bridge
Jason Hsu, PhDScroll down
Warning: Self-congratulatory and self-promotional message below =)
In addition to sharing a self-congratulatory announcement about my recent appointment to the Advisory Council for CFA Institute’s Financial Analysts Journal, I am pleased to also announce my forthcoming paper on the case for separating China from emerging markets was accepted for publication in the Journal of Beta Investment Strategies. I hope you are shocked to hear me advocate for EM ex-China, considering my extensive research on generating alpha in China and my tenacious support for the long-term investment thesis for China beta. Continue reading to unravel this seemingly inconsistent pivot!
The ideas in the paper were initially shared in September 2023 in my Bridge article, “Kicking the Elephant Out of the Room: The Case for EM ex-China.” I am grateful for the excellent comments, suggestions, and questions from many of you, which significantly contributed to turning this into a compelling paper—thank you! The paper, titled the same as my original post on the Bridge, will be published this summer. If you are interested in being informed when it comes out, let me know.
Before sharing some of the key points from the forthcoming paper, let’s revisit why I believe now is an opportune time to invest in EM. There seems to be consensus building on that conclusion, and it happens to be one I share:
If you find these points compelling and are considering an EM allocation, let me offer three criteria to consider in selecting an EM manager:
I hope this article has provided a helpful overview of our investment thesis and approach in EM. If you would like to leave prior to my marketing message—go now!
What I’ve described above mirrors the approach we adopt in EM investing with our EM ETF, RAYE. While I don’t directly market our funds often, I’m excited about RAYE. If you’re exploring EM as an asset class, I encourage you to consider our approach.
We are active managers and apply an active process. Although much of my early career was developing smart beta strategies, when looking at the research and opportunity for generating alpha from inefficient markets like Asia and EM, the decision to go active was abundantly clear.
We use a quantitative process to uncover great stocks within EM—companies that are high quality and trade at reasonable prices. We use this process to trade against the behavioral mistakes made by retail traders in these highly retail-driven and inefficient markets. We then apply a fundamental portfolio review to make sure that the quantitative process is building a portfolio consistent with our investment thesis. We call this blended process quantamental.
Furthermore, we exclude China from this process to allow investors the flexibility to allocate to China separately based on their own investment views and the preferences of their clients.
And how has RAYE performed? I invite you to see for yourself! You can find detailed information on our fund page – scroll down to watch the video of my colleague Dr. Phil Wool share more about our process and portfolio including historical performance.
Alternatively, please reach out to me or anyone on the Rayliant team. We would be happy to provide additional research and discuss whether this approach aligns well with your portfolio needs.
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This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice and is intended for educational purposes only.
Important Information Regarding RAYE
Please visit https://funds.rayliant.com for more information regarding the Rayliant Quantamental Emerging Market Equity ETF (RAYE). Carefully consider the Funds’ investment objectives, risks, and charges and expenses before investing. This and other information can be found in the Funds’ full or summary prospectus, which may be obtained by visiting https://funds.rayliant.com/raye. Please read the prospectus carefully before investing.
Risk of Investing Investing involves risk, including the risk of total loss of principal. Please consider the following risks before investing in the ETF.
Smaller Companies Investments in smaller companies typically exhibit higher volatility.
Quantitative Investments Investments that are managed according to a quantitative model can perform differently from the market as a whole.
International and Emerging Markets International markets involve political, social, economic and currency risks. These risks are heightened in emerging markets, which also include the risk of increased volatility and lower trading volume.
Active Management Risk The Fund may trade securities actively, which could increase its transaction costs (thereby lowering its performance) and could increase the amount of taxes you owe by generating short-term gains, which may be taxed at a higher rate. The Adviser’s judgments about the attractiveness, value, or potential appreciation of the Fund’s investments may prove to be incorrect.
New Fund Risk Because the Fund is new, investors bear the risk that it may not be successful in implementing its investment strategy, employ a successful investment strategy, or may fail to attract sufficient assets under management. This could result in the Fund being liquidated at any time.
Geographic Focus Risk The Fund may focus its investments in a particular country or geographic region and as a result, it may be subject to greater price volatility and risk of loss than a fund holding more geographically diverse investments.
Distributor The Fund is distributed by SEI Investments Distribution Co., which is not affiliated with the Fund’s adviser.