On “overheating” emerging markets stock and the search for “smart beta”
“Red Hot Emerging-Market Stocks Are Showing Signs of Overheating,” Bloomberg warns this morning, writing that “after the MSCI Emerging Market Index’s surge of about 17 percent this year, momentum indicators suggest the rally is losing steam.” Why? It’s all technical mumbo-jumbo. “The benchmark is approaching a resistance level formed by the trend line connecting the peaks in 2011, 2014 and 2015. While breaking above it would be a bullish omen, other technical signals also point to some overheating.”
Elsewhere this morning, if you manage other people’s funds and have any concerns about job security amid the rise of index funds and robo-advisors, go check out the Financial Times’ “2,000% rise in new money allocated to smart-beta funds,” which notes that, “Smart-beta funds, which act as a halfway house between active and passive management, drew a net USD 24 bn in the first three months of the year, up from USD 1 bn during the same period in 2016” as investors sought out what a BlackRock guy calls “efficient low-cost access to persistent drivers of returns.” Smart-beta funds now account for nearly 15% of the USD 4 tn invested in global ETFs, the Financial Times reports.
So what’s a smart-beta fund? In a sentence, an index fund that’s been ‘tweaked’ in the hope of generating “above-market returns, such as by excluding volatile stocks.” This video from Sara Shores, BlackRock’s global head of smart beta, dives a bit deeper (watch 3:04).