Capturing EM Inflection Points: Inside BCEM’s Active Strategy

Today’s challenging macroeconomic environment requires not only an active, but different approach to emerging markets (EM). EM is highly fragmented, rapidly evolving, and characterized by structural shifts in global trade, geopolitical re-alignments, and technological transformation. Navigating these complexities requires a forward-looking take on active management delivered by Baron Emerging Markets Select ETF (BCEM).

See More: Baron Capital Adds Risk-Optimized Large-Cap ETF to Lineup

Forward-Looking Active Approach

Many traditional emerging markets strategies rely on backward-looking screens or broad cap-weighted indexes. These may leave portfolios exposed to over-leveraged state-owned enterprises or stagnant incumbents. BCEM is a departure from this antiquated approach with its forward-looking mandate. Baron Capital’s portfolio manager Michael Kass, who spearheaded the firm’s broader EM strategy in 2011, manages BCEM. It utilizes a highly concentrated liquid framework to capture high-impact growth opportunities.

“Emerging markets investing requires navigating a wide range of policy, regulatory, liquidity, and volatility dynamics, which can shift more quickly than in developed markets,” Kass said. “An effective investor needs to have experienced these dynamics through multiple market cycles to manage this asset class thoughtfully and avoid reactive decisions.”

BCEM uses bottom-up fundamental research to uncover structural inflection points before prices are reflected in the market. This active agility is critical in EM given that it spans across thousands of companies across various geographic boundaries.

“Our forward-looking orientation is a key distinction,” Kass noted in a portfolio managers Q&A. “We want to identify inflection points early—a trend that’s likely to lead to material value creation through rising pricing power or revenue growth—before they are reflected in market pricing, which we believe is critical to capturing the full return potential of an opportunity.”

Built-In Risk Management

BCEM targets market leaders with strong, fortress-like balance sheets and robust pricing power. Various factors can cause heavy volatility in EM. Therefore, building a portfolio with quality companies that can weather downturns is an essential risk management strategy.

“Given the complex mix of geopolitical, economic, and financial factors in emerging markets, a successful approach must actively manage risk,” Kass said.

For prospective investors looking to allocate to EM for potential growth opportunities, BCEM encapsulates this opportunity in the flexibility, intraday liquidity, and efficiency of an ETF. Furthermore, adding the adaptability of an active ETF makes the fund an even more compelling option.

To learn more about the full lineup of active ETFs offered by Baron Capital, click here.

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