Another investing opportunity their clients see is happening in Brazil, which will be hosting the Olympics and the World Cup. "They see the infrastructure spend and they see the commodity move," Stein says. "Our clients have been very receptive to having us overweight in that area."
But finding the best ways to access the emerging markets has been a work in progress over years, says Beyer, who served as a financial advisor at UBS for 20 years before moving to Morgan Stanley more than three years ago.
Beyer began investing in the emerging markets in the 1990s, when there were just two or three mutual funds available as investing options, Beyer remembers. About a decade ago, after the emergence of indexing, Beyer and his practice turned to ETF portfolios.
Beyer worked with Holderith at UBS, and says he found the two were "kindred souls" when it came to using ETFs to invest clients' money, particularly at a time when many wirehouse firms did not subscribe to that idea. Later, working with Holderith and Emerging Global Advisors became an obvious fit, Beyer says.
"We were able to customize portfolios and be more tactical," Stein says. "There wasn't the research at the time to help create a tactical portfolio within that geographic area."
Today, emerging markets account for 15% to 20% of the stock side of a portfolio, on average, for the Beyer Stein Group's clients. The group still uses a core position in the Vanguard Emerging Market Index Fund (VWO), while delving into Emerging Global Advisors ETFs to add alpha to those portfolios. "We have probably two to three of their ETFs in a portfolio at a time," Stein says.
Big Rivals
Vanguard's flagship emerging markets fund, which has 100% exposure to the emerging markets, is one of the biggest players that Emerging Global is facing off against. Vanguard also has other ETFs on the market with various levels of exposure to emerging markets, points out Vanguard Senior Investment Strategist Jim Rowley. Among them are the Vanguard FTSE All-World ex-US ETF (VEU), focused on international mid- and large-cap stocks, with about 25% to the emerging markets, and the Vanguard Total International Stock Index (VXUS), focused on large, mid- and small-cap stocks outside of the U.S., with a 23% weight toward the emerging markets.
"We're certainly hearing more buzz about areas such as frontier markets and how to tap the emerging market consumer," Rowley says. "What's important to note as an investor is that as the global economy becomes more integrated, you have companies all over the world ... that are tied into the global economy and therefore tied into emerging markets and their consumers."
Emerging Global Advisors expects that ETFs will be just the beginning: Holderith and Hoekstra plan to expand into a broader asset management firm focused on emerging markets. In the first half of this year, Emerging Global Advisors will launch its first non-ETF institutional products. Those products, like the firm's existing ETFs, will be inspired by client need and, the firm hopes, ultimately help advisors expand their practices.
For Hoekstra, that means an education component: enabling financial advisors and registered investment advisors to provide their clients with new, smart advice on emerging markets.
"That's still possible," Hoekstra says. But there's a specific window of opportunity, he cautions.
"When people have ... the same conversations about emerging markets that they have about [developed] markets," he adds, "then you'll know that we can't differentiate anymore."
