Rethinking Risk: Why Smart Asset Allocation in Emerging Markets Matters

Speaker: 00:00:01

Welcome to the Adjusted for Risk podcast.

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Join myself, Brian Namath, as I talk

markets, investments, economics- Let's get

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started ... and life, as I help prepare

you for the upcoming week in markets.

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I work for Zephyr, and all opinions

expressed by myself and my podcast

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guests are solely of their own opinions

and do not reflect the opinion of

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Zephyr or Informa, its parent company.

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This podcast is for informational

purposes only and should not be

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relied on for investment decisions.

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Welcome, everyone, to Zephyr's

Adjusted for Risk podcast.

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We are on location at the Exchange

at: 2026

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Been a fantas- It's gonna

be a fantastic conference.

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A lot of great content lined up.

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Really excited for the next couple days.

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You know, diversification

was a big winner in: 2025

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The primary reason diversification

is back is due to the strong

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performance of foreign investments,

particularly emerging markets, which

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under- or which outperformed in 2025.

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Well, I have on the perfect guest to di-

discuss all things emerging markets and

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if they still have room to run in 2025.

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But first, this episode is sponsored

by the award-winning Zephyr, which

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helps investment professionals

make more informed investment

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decisions on behalf of their clients.

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I'd like to give a very

warm welcome to Ed Lopez.

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Ed is the head of product management

at VanEck, and also host of

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Trends with Benefits podcast.

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Ed, first of all, thank you so

much for coming on the podcast.

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Really, it's an honor to have you on.

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But I have to believe you probably have

the best name for a podcast out there.

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I think it's fantastic.

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I love Trends with Benefits.

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I don't even know if I can out-nine you.

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Well, you're...

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Yes.

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The, the Trends with Benefits podcast.

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Yeah.

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That's, that's a fun one.

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Yeah.

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Who came up...

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You...

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Can I give you all the credit?

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Honestly, I think Jan

VanEck came up with it.

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Oh, really?

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Yeah.

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I love it.

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I think that's a...

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I love that name.

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Fan- And it really plays into what

we try to do and, and with our

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product set, and play into long-term

trends that are playing out there.

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So it, it was perfect.

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Yeah, I love it.

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I, I think it's a really fun name.

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A lot of fun podcast names out there.

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Yeah.

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That's my favorite.

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So Ed, why don't you just start by telling

us a little bit about yourself and VanEck?

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Yeah.

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Uh, well, um, so yeah, I

head up our product team.

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I've been at VanEck,

gosh, almost 17 years now.

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Uh, one of the lucky few to get

hired in the, uh, uh, in the summer

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of the financial crisis in '09.

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In New York, you know, of all places.

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Um, but it's been, it's been a great run.

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And, uh, VanEck, if people don't know,

we're a, I guess, a $200 billion global

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asset manager, a top 10 ETF provider-

Um, have been an ETF since: 2006

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the firm was actually started in 1955.

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Uh, long legacy in, in natural

resources and emerging markets.

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And with our ETF business, the

first ETF of which was GDX.

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Maybe pe- many people know that ticker.

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They don't often realize it comes

from VanEck, but GDX was our first.

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We've been able to build out a, a nice

suite of ETFs across asset classes,

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uh, with, uh, a wide variety of

approaches to, you know, providing the

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best exposure that we think- Mm-hmm

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possible.

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Yeah.

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That's fantastic.

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Yeah.

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VanEck has been a great,

fun company for years.

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I love the story, and very

innovative products, too.

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Yeah.

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Thank you very much.

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Lot of, lot of great products.

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So emerging markets, like I said

at the open, fantastic performance,

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uh, in 2025, outperformance.

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But there's a lot of macro uncertainty

going on right now in the world, lot of

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things happening that, you know, investors

are faced with in emerging markets.

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Do you think-- How does that impact,

all that uncertainty, the war with

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Iran, impact emerging markets, and do

you think emerging markets are gonna

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be able to withstand it and continue?

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Well, I'll, I'll back up a little

bit, because I think there are some

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short-term impacts that are, that

are happening stemming, stemming

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from the, the, the Iran conflict

or war, whatever you wanna call it

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and, and other things, and there's

some risk-off that has happened

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more recently, um, since the end

of February of, of this year.

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Um, but last year in, in, in, in

your intro, uh, you talked about

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diversification winning and emerging

markets really kinda being part of that.

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Diversification won for you if

you are particularly diversified.

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One of the problems is that many

people, many US investors tend not

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to have much diversification in the

way of, say, international or even

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emerging markets in particular.

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But yes, in, in emerging markets,

uh, to put it in perspective, in

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2025, emerging market equities

were up, I think, over 30%.

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Um, the S&P was up,

like, 17 or so percent.

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Also, emerging market debt, if you

look at a blend of- Mm-hmm ... local

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currency and hard currency, were up

also around 17%, just shy of that.

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So good performance on emerging market

assets in, in general last year and,

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and they continued pretty well up

until, um, the most recent conflict

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in, in February, uh, where you saw

some risk-off happening- Mm-hmm

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and, and, uh, uh, and people

going back into the US dollar.

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But longer term, we're, we're very

constructive on emerging markets.

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Um, we-- I guess we always have

been as a, as a long-term story.

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But right now, I think the setup is

particularly, uh, good, and there was a,

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a few things happening there, which was

geopolitical machinations or whatever.

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You know, ever since Russia in-invaded

Ukraine, um- Different governments around

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the world woke up to this idea that the US

dominates too much of their one of their

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reserves and, and, uh, and, and capital.

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So there's been a, um, amongst central

banks around the world and governments

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around the world, diversification away

from the US dollar, and that plays

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into, uh, international currencies or

emerging market currency strength as well.

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Um,

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and you also have better fiscal

financial positions of, of a lot of

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these countries and central banks.

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Uh, one of our EM debt managers,

Eric Fine, uh, talks about this idea

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of fiscal dominance, where emerging

markets have a lack of fiscal dominance.

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Now, I know dominant sounds like a, a

strong, good word, but it's actually

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bad in this context, where developed

markets have a lot of fiscal dominance

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where their debts and deficits

dominate to the extent where monetary

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policy is, is toothless to, to really

control inflation and what have you.

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Uh, emerging markets are

in a much better shape.

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So financially, much better

shape, more, um, y- better run

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central, uh, central banks.

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Um, and you're f- and, and then also

just the assets, a better valuation

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relative- Mm-hmm ... to developed markets.

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So I think there's, there are

things in place to-- that point to

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a good long-term be that opportunity

for people to, okay, reassess.

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Yeah.

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And that's a very good point,

and I'm really glad you added

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that point about diversification.

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You only get the benefits of

diversification if you're diversified-

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Right ... within your portfolio.

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Do you think, and you brought it up,

there's probably w- people, investors are

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too underweight emerging markets, whether

it's equities or fixed income debt.

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Why do you think that is?

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Do you just think it's because the US

has outperformed for so many years,

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it's like, why do emerging markets,

they just are afraid to invest in China?

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Or w-what, why do you think that is

that there's under, uh, weight there?

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Well, as, as...

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Well, US investors are very lucky.

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We have a fantastic market, you know?

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Mm-hmm.

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Very resilient capital markets.

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Well, emerging markets, just based

on GDP, account for greater than

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fifty percent of global GDP, yet

in many investor portfolios, maybe

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emerging markets are, you know, one

to five percent, just a small sliver.

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Mm-hmm.

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Um, I think there is historically

been a home bias towards investing,

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so, you know, we have these very

developed markets for equities and

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fixed income, so there's that home bias.

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Um, headline risk, of course, and

past crises that have come out

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of different, uh, regions around

the world don't, don't help that.

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Um, but a- as we've been saying for

the last, I guess now, couple decades,

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many emerging market countries have

really found their way into a more

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professionally Organized and, and run

central banks and, and, uh, financial

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shape than a lot of the developed

markets from a fiscal standpoint.

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Um, so I think there's

opportunity for investors there.

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Um...

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Yeah.

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No, that makes a lot of sense.

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And talked about the opportunities.

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To, to kind of go along with that,

we often know emerging markets, it,

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it helps with diversification, right?

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Diversification benefits there.

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But are there any other reasons maybe

that investors should include, you

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know, more emerging markets in their

portfolio instead of just 1%, maybe

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it's 5%, or just include it altogether

outside of just diversification?

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Well, yeah.

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You know, diversification's a

big, um, big component of that

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if you're an asset allocator.

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Um, if you're greedy, maybe

it's more about- ... uh, more

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potential opportunity and return.

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You know, you have, um,

a growing middle class.

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Uh, you have young populations, particular

in, in, uh, in India, for instance.

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That's a, a big area- Mm-hmm ... that

we're particularly, uh, keen on.

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Um, and, and you're having an

adoption of technology that's

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happening at a, at a, at a rapid rate.

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So growth is happening.

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Uh, markets are building out.

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It's a, it's an opportunity set as well

as being, uh, a pure diversification play.

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Mm-hmm.

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Yeah, no, that, uh, makes a lot of

sense, and: 2025

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Yeah, yeah ... too, right?

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Um, even though there's been years

of underperformance, it's hard

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to, to ignore the asset class.

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Let's talk...

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We brought up briefly China.

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Yeah.

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Kind of the elephant in the room.

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It, it's like I often say,

emerging markets, you don't wanna

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just go passive in it, right?

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Um, b- that would be a huge

allocation that China makes up a

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big percentage of the EM index.

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Right.

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But what do you tell, like, to the

financial advisors who say they

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don't wanna invest in China, or,

you know, they don't wanna invest

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in emerging markets because China's

just too big of an allocation there.

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What do you tell them about emerging

mar- you know, there's other countries.

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Yeah.

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It's not, they're not created equally.

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Well, right, that's the biggest thing.

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I think one of the biggest

misperceptions about emerging markets

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is that it's a monolith, right?

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It's like they all,

it's all the same thing.

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It's not.

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E- each of these countries have

different characteristics, good and bad.

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Uh, and our active managers would

tell you, you have to be selective.

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You have to be active.

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And, and fortunately, um, if you

haven't gone over to ETFs, get to ETFs,

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because there's tons of different ETFs.

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Um, smart beta ETFs,

you may know that term.

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Uh, we have some of those that,

that, uh, that do something different

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and select by quality and, and,

and other factors to, even on an

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index basis, uh, select securities.

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Uh, there are country funds,

individual country funds.

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We have a, a number of those as well.

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So if you don't like China,

fine, go, go, go somewhere else.

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Mm.

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If you want a broad-based

product, there's, there...

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We don't have one yet, but there's,

uh, plenty of, uh, emerging market

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ex China Uh, so yes, China's a, a

big consideration given its weight

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in emerging market indices, but

there's, there's ways around that.

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And an alternative to China, and

I mentioned this, uh, briefly

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earlier, is, is India, that

we're very keen on right now.

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We have three products on that right now.

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We have a digital India product,

which is really focused on

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local market developments in the

digital- Mm-hmm ... space and,

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and how that economy's evolving.

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Um, we have our, um, growth

leaders India product, that's

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kind of that smart beta approach.

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Mm-hmm.

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And we recently launched, uh, INDZ, uh,

which is our India, uh, select product.

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So this one's an actively managed by a, a

portfolio manager who's, who's deep into

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India, he loves the space, and he's a-

actually gave me the idea for DGEN- Yeah

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which is our digital

India- Yeah ... uh, ETF.

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Um, so I, I think that one's a

really exciting one too if you want

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active management in that space.

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But anyway- Yeah ... enough product pitch.

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No, I think that's fanta- And it goes

to the point of when I started in

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the industry, it wasn't that long...

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Well, I started in the industry a

long time ago, but it wasn't that

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long ago when, you know, ETFs, they

were just passive track a benchmark.

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Yeah.

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Now with active ETFs, it

makes it so much easier.

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Back then, yeah, you get whatever

is in the emerging market index.

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Yeah.

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Now with active ETFs, you

can be more selective.

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You can pick products that

aren't, you know, don't have

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a 50% weight to China- Right.

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Yeah ... if you don't want it.

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So.

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You know, the, uh, uh, active ETFs are

a relatively new thing in ETFs, which,

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and, and it's great that they're coming

and they're coming in, in a big way,

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especially over the last couple years.

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Um, but before that we had, uh, you know,

it's funny, I used to hate this term,

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but smart beta, but people get it, right?

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You know?

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Um, kind of fundamentally weighted

types of strategies, which

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was another way around that.

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If you want more consistency in

terms of you know what you're gonna

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get, you know why it happens because

of the rules and what have you.

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Uh, an active manager still

has to perform, right?

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Mm-hmm.

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So you have a lot of active

managers looking to come in,

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they still have to perform and,

and, you know, earn their keep.

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Yeah.

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No, you're exactly...

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You're...

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Performance still matters.

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Yeah.

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You know?

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Even though people say, "Well, there's

other things than performance," but- Yeah

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it, it does matter.

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What, um, you know, we- you

mentioned a little bit, what

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are some other misconceptions of

investing in emerging markets?

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I think that, um, volatility, I

don't know if that's a misconception.

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There is volatility that comes

with, um, the, the, the currency.

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You know, uh, you're going to

local currencies versus US dollars.

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Um, that they're all the

same, I talked about that.

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There's a, that they're a monolith.

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Um, that they're all commodity based.

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Yes, they ha- many emerging markets,

and here I'm talking about them

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generally, um, many em- emerging markets

have historically had strong, uh,

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relationship to com- commodities markets.

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But countries are, are growing

and they're developing- Um, the

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capital markets are developing.

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So you're seeing more capital market

development, more funds being invested

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and, and created o- on a local sense.

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And, and that has helped driving assets

to different industries and growth in tech

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and software and, and, uh, other areas.

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So they are developing Yeah ... uh, uh,

their, their markets, uh, more broadly.

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So I think you'll find greater

diversification of economic contribution

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from within the, the local markets- Mm

... in, in many of these, uh, countries.

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Ed, I think that's fantastic, too.

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And, you know, like, it, it's

evolved greatly in five years-

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Yeah ... 10 years, right?

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So it's one of those asset classes

I think needs to have a, you know,

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a closer look or another look,

um, when building that portfolio.

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Lastly, how can...

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You touched on it with ETFs.

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How do you...

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What's the best way for financial

advisors to gain exposure to

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emerging markets for their clients?

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Yeah.

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Um, well, I, I guess

I should pitch VanEck.

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Go- ... go to vaneck.com.

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But, um, ETFs, I think ETFs

are a great way to do it.

315

: 00:15:50

Um, it, it really kind of depends on

what you're trying to do with that

316

: 00:15:52

asset allocation, but, uh, ETFs are

a great way to manage that, whether

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: 00:15:57

you want a broad-based ETF- Mm-hmm

318

: 00:15:59

one that X's out China or, you

know, individual countries.

319

: 00:16:03

Um, and then find if you want an

actively managed approach, that's, you

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: 00:16:07

know, we'd be happy with that, too.

321

: 00:16:09

I think that makes-

Mm-hmm ... a lot of sense.

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: 00:16:10

So hopefully you look us up and,

and, and you like what you see.

323

: 00:16:14

Yeah.

324

: 00:16:14

I com- There's some asset classes where

you can, you know, passive makes sense.

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: 00:16:19

Maybe a large blend, US large blend.

326

: 00:16:22

Yeah.

327

: 00:16:22

But there's also asset classes where

I'm a firm believer that you gotta

328

: 00:16:26

go active- Yeah ... and emerging

markets is, is one of them, for sure.

329

: 00:16:29

I think you can find more opportunity

in certain asset classes, like, you

330

: 00:16:32

know, small caps or emerging markets

relative to large cap, but- Yeah.

331

: 00:16:35

Yep ... you know.

332

: 00:16:36

You're exactly right.

333

: 00:16:36

Ed, fantastic conversation.

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: 00:16:39

Thank you so much for coming on.

335

: 00:16:40

You already mentioned the website,

but why don't you tell our audience

336

: 00:16:43

again, where can they get more

information- Yeah ... about VanEck?

337

: 00:16:46

Check out vaneck.com.

338

: 00:16:47

Uh, we do content almost every day,

webinars and, and blogs and videos.

339

: 00:16:52

Mm-hmm.

340

: 00:16:53

And then also, if you're

interested, check out my podcast.

341

: 00:16:55

It's, uh, Trends with Benefits.

342

: 00:16:56

Um, there's a link on our website

there as well, and we talk with, uh,

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: 00:17:00

different guests, portfolio managers,

analysts, um, people around the industry,

344

: 00:17:04

just about trends that are happening

and different asset classes- Yeah

345

: 00:17:07

as well.

346

: 00:17:07

Yeah.

347

: 00:17:07

It, uh, some may not agree with

it or disagree with me, but

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: 00:17:12

I do do some research before

having these conversations.

349

: 00:17:16

VanEck, your website's

great with the content.

350

: 00:17:18

I love your podcast.

351

: 00:17:19

A lot of fun.

352

: 00:17:20

A lot of fun.

353

: 00:17:21

So thank you so much, Ed, and thank you

everyone for listening to this episode

354

: 00:17:26

of Zephyr's Adjusted for Risk podcast.

355

: 00:17:28

You can catch all of our other podcasts

on the Zephyr YouTube channel, Spotify.

356

: 00:17:33

Please be sure to like, subscribe,

and give us a follow on LinkedIn.

357

: 00:17:36

Thank you very much, and have

a great rest of your week.

358

: 00:17:46

Let's get started.