Emerging market economies have been generating interest as investors diversify portfolios for growth value and yield. Emerging markets have enjoyed a supportive economic backdrop, and as emerging economies grow, investors should see that translate in to steady long-term investment returns.

Emerging economies have come a long way in the past few years. Sovereign and corporate balance sheets are strong and financial institutions are more robust. While the risk of investing in emerging markets continue to be greater than that of developed markets, there are exciting opportunities to be had investing in emerging markets for the long term.

In 2018, the economic and fiscal health of a number of emerging-markets economies should remain healthy despite volatility earlier in the year. Growth in emerging economies is expected to hit 4.5 percent in 2018, according to the World Bank. In comparison, the World Bank reported that developed market growth rates are forecast to decline to 2.2 percent in 2018 from 2.3 percent in 2017. In aggregate, emerging markets are forecast to be the largest contributors to global growth in 2018.

Emerging markets offer investors tremendous geographical diversification. Emerging market countries are not homogenous and should therefore not be viewed or treated as such. For instance, last year, Indonesia made solid economic progress. Returns in emerging markets were lifted by these and other successes, such as positive policy developments in Argentina and Brazil. However, overall returns were dampened by countries that faced significant economic headwinds, such as South Africa. 

India continues to generate significant interest through a combination of fiscal reform and independent monetary policy. Investors have priced in a hike to 6.5 percent before the end of the year, according to a February 2018 Bloomberg poll. Factors, such as improving growth prospects and rising inflation could also influence the monetary policy outlook in 2018. Managers who understand the nuances of India are better positioned to take advantage of and find opportunities for investment.

Each country is at a different stage of political, and economic development. We believe that active managers are better positioned to understand where the investment opportunities lie with the companies active in the EM world. 

One way that investors can access actively managed emerging market strategies is through closed-end fund vehicles. Closed-end funds can offer investors distinct advantages when investing globally. For example, closed-end funds have a fixed pool of capital, which means investors are not exposed to forced redemptions during times of market volatility.

The closed-end fund structure also allows the asset manager to make and stick to a long-term fundamental investment view, and not worry about the dilution effects of holding cash to meet redemptions.  With no index constraints, closed-end fund managers can look for opportunities beyond EM indices, and also for less liquid investments.

In today’s complex global markets, looking beyond more traditional, widely used investment vehicles should be a solution to finding new opportunities. Investors who have yet to take a closer look at closed-end funds may be missing out on ways to broaden their exposure to emerging markets and capture potential returns.

Rennie McConnochie is head of global banks at Aberdeen Standard Investments and president of the Closed-End Fund Association.