Emerging Market Small Caps: Hidden Gems in Plain Sight? (Wellington Management)

Emerging markets (EM) have come a long way over the past three decades. As these markets have evolved and matured through the years, the number of EM equity strategies has proliferated in response to growing investor acceptance of and interest in the asset class. Today, many investors — retail and institutional alike — have a dedicated allocation to EM equities, yet most continue to be firmly biased toward the larger end of the market capitalization spectrum.

In Wellington Management’s view, this results in an unfortunate missed opportunity because a well-built portfolio of EM small-cap stocks can be an effective complement to an existing core EM equity allocation. In this paper, Wellington Management makes the case for strategically investing in EM small caps and for employing an actively managed approach to this underutilized asset class.

Four reasons Wellington Management believes in a strategic allocation to EM small caps

  1. Strong performance potential
  2. Portfolio diversification benefits
  3. Direct exposure to domestic EM growth opportunities
  4. An undercovered, inefficient market = fertile ground for active managers READ MORE

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