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Emerging markets and passives end 2017 on a high


Research and consultant firm Cerulli Associates reports that, having ended 2017 on a high, emerging markets (EM), passives, and products that combine both themes are likely to be among the best-selling funds in Europe during the early months of next year.

The firm believes that MiFID II, which takes effect in January, will further boost sales of passive funds at the expense of actives. The firm also expects demand for funds that meet various environmental, social, and governance criteria to swell.

The S&P 500’s near-nine-year bull run continues to fuel concerns about valuations in developed markets (DM). Cerulli notes that while the MSCI EM Index is also in record territory, EM company earnings estimates are still rising markedly.

“Many pundits are forecasting a pullback for DM in 2018. If at long last the doomsayers’ warnings are correct, EM could prove the best bet among equities,” says Angelos Gousios, director, European retail research, at Cerulli. “With data suggesting that EM funds are no more likely to beat their benchmark than others, there may be easier money in passives, including exchange-traded funds.”

Cerulli expects that investors sticking with DM in 2018 will increasingly opt for passives, either plain vanilla tracking the likes of the S&P 500, or a smart-beta variation.

“We believe that MiFID II’s drive for transparency on costs will shift the balance further in favor of passive investing. But passives might not need any regulatory help to boost their cause,” says Gousios.

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