The Emerging Market Equity Allocator summarizes the country allocation recommendations of our model for emerging market countries. The goal is to enhance the dollar returns of un-hedged, long-only emerging market equity portfolios benchmarked against the MSCI emerging markets universe.
Our model is built on a scoring mechanism. Each month it compares the markets under coverage on the basis of quantitative investment factors that have been shown to convey information about future equity returns in research by academics and practitioners, including ourselves. These include indicators of Valuation, Growth, Risk, Interest Rate Trends, and Sentiment/Momentum.
Each month, scores are computed for each factor, and a total score is computed for each country (equal to the weighted average of the individual factor scores). Each country then gets an over weight or underweight allocation relative to the benchmark that is roughly in proportion to the difference between the country’s total score and the cross-market average total score (with restrictions on the maximum allocation possible to each market to avoid unrealistically large exposures to small markets). The model is updated each month and the performance of the model portfolio is compared to the benchmark.