Global equity investors face a pivotal question about where—not just how—to allocate capital. Emerging markets are uniquely positioned as a powerful tool for diversification and performance enhancement. With recent analysis signaling that the long underperformance of emerging markets may be nearing its end, the debate between active and passive strategies in these regions takes on renewed relevance. While passive strategies have dominated performance in many developed markets over the last 20 years, inefficiencies inherent to emerging markets create fertile ground where active management can add decisive value.
- Higher Return Dispersion: Emerging markets exhibit greater stock return variability compared to developed markets. This wider dispersion creates opportunities for active managers, particularly those with robust stock selection skills and a quantitative edge. Data repeatedly highlights how effective stock selection drives superior results in these less efficient, more dynamic environments.
- Elevated Transaction Costs: Passive strategies face higher transaction costs in emerging markets due to frequent index-driven trades. Active managers, on the other hand, execute more strategic trades that aim to balance costs while capitalizing on alpha opportunities.
- Mitigating Sector Concentration Risks: Emerging market indexes suffer from significant sector imbalances, heavily tilted toward a few areas like Information Technology and Financials. This creates vulnerabilities to sector-specific shocks. By contrast, active managers can design portfolios with targeted diversification, mitigating concentration risks while preserving upside potential.
For Financial Professional Use Only. Not for use with the public.
The views expressed herein are those of PGIM Quantitative Solutions investment professionals at the time the comments were made and may not be reflective of their current opinions and are subject to change without notice. Neither the information contained herein nor any opinion expressed shall be construed to constitute an offer to sell or a solicitation to buy any security.
Certain information in this commentary has been obtained from sources believed to be reliable as of the date presented; however, we cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. The manager has no obligation to update any or all such information, nor do we make any express or implied warranties or representations as to the completeness or accuracy. Any projections or forecasts presented herein are subject to change without notice. Actual data will vary and may not be reflected here. Projections and forecasts are subject to high levels of uncertainty. Accordingly, any projections or forecasts should be viewed as merely representative of a broad range of possible outcomes. Projections or forecasts are estimated, based on assumptions, subject to significant revision, and may change materially as economic and market conditions change.
This material is being provided for informational or educational purposes only and does not take into account the investment objectives or financial situation of any client or prospective clients. The information is not intended as investment advice and is not a recommendation. Clients seeking information regarding their particular investment needs should contact their financial professional.
Prudential Investment Management Services LLC is a Prudential Financial company and FINRA member firm. PGIM Investments is a registered investment advisor and investment manager to PGIM registered investment companies. PGIM Quantitative Solutions is the primary business name of PGIM Quantitative Solutions LLC, a registered investment advisor. All are Prudential Financial affiliates.
© 2025 Prudential Financial, Inc. and its related entities. PGIM, PGIM Investments, PGIM Quantitative Solutions and the PGIM logo are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.
For compliance use only 4234335