Investors seeking an active edge in regions beyond North America have a new lineup of exchange-traded funds (ETFs) to choose from.
On September 22, Asia-focused investment firm Matthews Asia launched five new actively managed emerging market ETFs on the New York Stock Exchange (NYSE).
The Matthews Pacific Tiger Active ETF (NYSE Arca: ASIA) seeks to invest in high-quality growth companies in Asia outside of Japan. The Matthews India Active ETF (NYSE Arca: INDE) is a single-country all-cap fund targeting innovative firms across sectors and themes that are poised to ride high on India’s growth trajectory.
The Matthews Japan Active ETF (JPAN) is a single-country, all-cap, high-conviction ETF targeting sector leaders. The Matthews Asia Dividend Active ETF (ADVE) is a core regional fund focusing on stable, low-growth companies in Asia Pacific. The Matthews Emerging Markets Sustainable Future Active ETF (EMSF) is a high-conviction all-cap fund focused on firms that prioritize environmental, social, and governance (ESG) impact within global emerging markets.
“Sophisticated investors have long sought emerging market exposure, for returns and diversification,” said Matthews Asia CEO Cooper Abbott. “After a period of under-allocation, institutions and professional investors are … adding more customized emerging market exposures to their portfolios.”
The firm takes an active approach to these funds, which has been on trend in 2023. Active ETFs ballooned by 14% during the first half of the year, according to Morningstar data, as compared to just a 3% growth rate for passive ETFs.
“It’s super important to go active,” Matthews’ portfolio strategist David Dali told Vettafi regarding investing in emerging markets, suggesting a passive approach tends to miss important factors about these complex regions of the world.
“Our benchmarks tend to be blind things like corporate governance, regulatory issues, and geopolitics,” he added.
Investors typically pivot toward emerging markets to gain exposure to long-term structural growth and geographically diversify their portfolio beyond North America.
Yet, emerging markets have had a start-stop recovery this year after 2022’s debilitating market rout. Although some Morgan Stanley analysts last November predicted 2023 would be a “comeback year” for emerging markets, they have struggled to get back on their feet. With the notable exception of January, they have trailed the US-based S&P 500 for every month of the entire year.
After the U.S. Federal Reserve’s hawkish signals in recent days, a broad sell-off swept global bourses, with the Emerging iShares MSCI Emerging Markets ETF (EEM) declining dramatically. It is now poised to erase its 2023 gains, up just 0.3% year-to-date.
Some markets targeted by Matthews Asia’s new ETFs have fared better, though. Japan’s benchmark, Nikkei 225, for instance, reached historic highs in July.
In weighing up these new offerings, investors will likely assess the outlook for worldwide markets amid ongoing uncertainty over interest rates and slowing growth in other core regions of the global economy, including Europe and China.
Each of these funds has an expense ratio of 0.79%.