Contrary to fears of being a crowded trade, EM fixed income is significantly under-owned by global asset allocators. Since 2012, EM local bonds have seen zero net inflows, while private credit AUM grew by $2 trillion from the same starting point. This suggests substantial room for future capital allocation into the asset class.

Active management is more viable in emerging markets than in the US. The largest EM ETF (EEM) has a high 0.72% expense ratio, the universe of stocks is twice as large as the US, and analyst coverage is sparse. This creates significant opportunities for skilled stock pickers to outperform passive strategies.

Contrary to the growth narrative, the MSCI China index returned just 3.4% over the last decade with over 24% volatility. During the same period, the emerging market ex-China index delivered a higher return of 4.8% with significantly lower volatility (17.5%), highlighting structural headwinds in China for investors.

A powerful EM strategy involves identifying businesses with proven, powerful models from developed markets, like American Tower. Local EM investor bases may not be familiar with the model's potential, creating an opportunity to buy these companies at a displaced valuation before their predictable results drive multiple expansion.

Don't dismiss megatrends like demographics and technology as only long-term concerns. Research from Vanguard's Joe Davis shows these forces account for roughly 60% of quarter-to-quarter changes in per capita GDP growth and earnings yield, making them immediate drivers of the business cycle.

Despite investor nervousness after a strong 2025, EM currencies could appreciate against the dollar again in 2026. Analysts argue that the 14-year bear market has turned, citing historical precedent from the 2002-2010 bull market where consecutive positive years were common. This challenges the prevailing investor caution.

Brazil's next election presents a major catalyst. An opposition win would likely unlock pent-up investment and allow high real interest rates to fall, creating a virtuous cycle. Conversely, a win for the incumbent party would likely keep rates higher for longer, suppressing growth and investment.

Emerging vs. developed market outperformance typically runs in 7-10 year cycles. The current 14-year cycle of EM underperformance is historically long, suggesting markets are approaching a key inflection point driven by a weakening dollar, cheaper currencies, and accelerating earnings growth off a low base.

Many commodity funds make bold macro predictions (e.g., on inflation) but take timid, diversified equity positions. A superior strategy is the reverse: maintain a neutral macro view while making concentrated, 'bold' bets on specific companies with powerful operational catalysts that generate alpha regardless of the macro environment.