ESG investing has become more in vogue in the past five years. Part of this may be driven by an on-faith belief, supported by shallow anecdotal evidence, that investing in ethical companies (high ESG companies) must lead to better investment outcome. You could call this belief the “good karma” principal in investing.
Factor returns are often reported as the average of factor returns among large stocks and the factor returns among small stocks. However, factor returns among small, illiquid stocks are significantly higher than those among larger, more liquid stocks, suggesting that the factor returns in the literature are exaggerated and cannot be implemented with substantial assets.
Already the world’s second-largest economy, China is expected to pass the U.S. as the number one within ten years. Just how does that extraordinary growth translate into an opportunity for equity investors?
Emerging markets equity beta provides investors with a welcome source of portfolio diversification. But inefficient markets dominated by heavy retail trading also present a compelling alpha opportunity for portfolios tailored to the nuances of EM.
China’s state-owned enterprises (SOEs) and private listed companies differ in profit motives and capital access, posing a challenge to investors. Combining a quant approach to managing SOE exposure with fundamental insights offers a more compelling solution.
Some investors shy away from the emerging markets, put off by hazy accounting and financial reporting. Quantitative tools help cut through the fog, avoiding the pitfalls of misleading data and capturing opportunities not recognized by the market.