By Jonathan Smith, UK Strategic Solutions, Schroders
At present most defined benefit UK pension schemes have some exposure to emerging markets. This may be via a global equity portfolio, or by investing in companies whose profits partly derive from these markets. Pension scheme trustees are also looking increasingly to add a dedicated emerging markets allocation to their investment strategy.
There are two reasons why a UK pension scheme might invest in emerging markets, either they believe
1) Emerging market economies will continue to grow faster than developed markets. Investors can exploit this growth to achieve a higher return than by investing in developed markets alone;
and/or
2) Investing in emerging markets increases asset diversification
For a long term investor such as a UK pension scheme, the arguments in favour of 1) are potentially the most compelling.
In this paper we discuss the strategic case for investing in emerging markets, in particular exploiting long term economic growth in these markets to enhance returns. We also discuss the diversification potential of emerging market investments and two of the main emerging market asset classes - equities and emerging market debt (EMD).
To read the full article please click here: schrd.rs/VudWmi
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