Investors pouring cash into active emerging-market ETFs

They see valuation chasm between US and developing-nation stocks as sign to load up

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As investors scour the globe for undervalued stocks, one increasingly popular destination is actively managed exchange-traded funds (ETFs) that focus on emerging markets.

In the US$348 billion (S$469 billion) market for ETFs that invest in developing-nation assets, the holdings of only about 5 per cent of funds are actively managed - rather than pinned directly to an underlying index, according to data compiled by Bloomberg.

But those actively managed funds have lured in more than a third of the new cash that has flowed into the asset class over the past year, and more than 50 percent in the past month.

"If ever there was a compelling case for a more systematic approach to active management, it's now," said Mr Donald Calcagni, chief investment officer of Mercer Advisors Investment Management and a buyer of active emergingmarket (EM) ETFs.

"Look at all the dislocations that are happening globally, at valuations, at how concentrated markets have become." The reasons for the shift towards EM shares are plenty.

Developing-nation stocks are trading at a discount of about 43 per cent compared with their peers in the United States, just shy of the biggest valuation gap on record, data compiled by Bloomberg shows.

That chasm is a signal to some on Wall Street - including those with very few overseas investments that developing-nation stocks are undervalued, offering an ideal moment to load up on the assets.