EGA EM Investor Sentiment Survey Conducted in 2Q16 155 W 19th St. New York, NY 10011 +1 888 800 4347 emergingglobaladvisors.com 1
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EGA EM Investor Sentiment Score In the second quarter, the EGA EM Investor Sentiment Score was 687, indicating investors generally had a positive outlook towards emerging markets for the next 12 months This is up 28% from the first quarter score of 538, signaling a change in investor sentiment 1000 900 800 700 600 500 400 300 200 100 0 EGA EM Investor Sentiment Score Trend EGA EM Investor Sentiment Gauge Neutral 2Q16 Score 3
EM Investor Sentiment Survey Summary of Results With emerging markets (EM) leading other equity regions in the first half of 2016 1 investors are showing continued interest in increasing portfolio allocations to emerging markets. Key Findings (EM): Most respondents currently have either 5-10% (29%) or 1-5% (30%) allocation in emerging markets 78% of respondents say their current allocation is about the same or higher than 12 months ago, while only 22% say it is lower (down from last 1Q2016) Positive was the most common answer (47%) for respondents outlook for EM equities over the next 12 months, followed by Neutral (43%). This is a change from 1Q2016 when Neutral was the most common answer. 49% expect to stay the course with their EM equity allocation in the next 12 months, while 46% expect to increase their EM equity allocation, consistent with last quarter Key Findings (Smart Beta): Across all asset classes, nearly half (49%) of respondents have replaced or expect to replace an active manager with a smart beta ETF. More than a third (36%) will/would do so in EM. According to respondents, Generating alpha and accessing a specialized exposure are viewed as the most important attributes when selecting a smart beta ETF 1 Source: Bloomberg, MSCI, EGA. MSCI Emerging Markets Index was up 6.41% from January 1 June 30, 2016. 4
Section 1. RESULTS BY QUESTION 5
What is your current emerging market equity allocation as a % of your equity portfolio? Most respondents currently have either 5-10% (29%) or 1-5% (30%) allocation in emerging markets. Current EM Equity Allocation 25-35% Allocation 1% 15-25% Allocation 10% No Allocation 11% More than 35% Allocation 6% 10-15% Allocation 13% 1-5% Allocation 30% 5-10% Allocation 29% 6
How does your current allocation compare to 12 months ago? 78% of respondents say their current allocation to EM is About the Same or Higher than 12 months ago. Only 22% said their allocation was lower, versus 37% of respondents at the end of 2015. Change in Allocation vs. 12 Months Ago Higher 19% Lower 22% About the Same 59% 7
Over the next 12 months, what is your outlook for emerging market equities? Positive was the most common answer (47%) for respondents outlook for EM equities over the next 12 months, which varies significantly from 4Q2015. At that time, Positive was the least common answer (26%). Outlook for EM Equities over next 12 months Negative 10% Positive 47% Neutral 43% 8
Over the next 12 months, how do you expect your emerging market allocation to change? In contrast to 4Q2015, investor attitudes have markedly shifted from No Change to Increase within their emerging market allocations. As of 2Q2016, 46% of respondents expect to increase their EM allocation over the next 12 months and only 5% expect to decrease. Expected change to EM allocation over next 12 months Eliminate Decrease 0% 5% Increase 46% No Change 49% 9
Have you ever, or do you expect to, replace an active manager in any asset class with a smart beta ETF? Nearly half (49%) of respondents have replaced or expect to replace an active manager with a smart beta ETF across any asset class. Have you ever, or do you expect to, replace an active manager in any asset class with a smart beta ETF? N/A 11% Yes 49% No 40% 10
Have you ever, or do you expect to, replace an active emerging market equity manager with an emerging market equity smart beta ETF? 36% of respondents have replaced or expect to replace an active manager with an emerging market equity smart beta ETF. This finding is in line with a recently published EGA expert series, Strategic Beta in Emerging Markets 2, which highlights the slower smart beta adoption rate within EM compared to other asset classes. Have you ever, or do you expect to, replace an active emerging market equity manager with an emerging market equity smart beta ETF? 0 N/A 20% Yes 36% No 44% 2 Source: EGA, Strategic Beta In Emerging Markets, 2016 11
When selecting a smart beta ETF, what is the most important attribute of the fund in your selection? According to respondents, Generating alpha and accessing a specialized exposure are viewed as the most important attributes when selecting a smart beta ETF. When selecting a smart beta ETF, what is the most important attribute of the fund in your selection? Other 16% Provide specialized exposure 26% Generate alpha 36% Generate income 3% Mitigate volatility 20% 12
Demographic Questions Over 72% with >$100mm 0% What are your assets under management? What is the type of firm where you work? 55% RIAs Over $1 billion 29% Up to $100 million 28% 7% 6% 12% 55% Independent Registered Investment Advisor (RIA) Wirehouse / Broker-Dealer ETF Strategist $500 million - $1 billion 15% $100-500 million 28% What are your ETF assets under management? 20% Pension / Endowment / Foundation / etc. Other (please specify) 64% with >$10mm Over $100 million 28% Up to $10 million 36% $50-100 million 10% $10-50 million 26% Assets under management are self-reported. 13
Section II. METHODOLOGY 14
Methodology Conducted June 1 July 7, 2016 Respondents: 83 asset managers and financial advisors, with over 72% managing more than $100 million in assets EM Investor Sentiment Score calculated based on the answers to question 3: Over the next 12 months, what is your outlook for emerging market equities? Negative outlook scored as 0 points Neutral outlook scored as 500 points Positive outlook scored as 1000 points 15
CONTACT INFORMATION VISIT: emergingglobaladvisors.com READ: Emerging Perspectives CALL: +1 888 800 4347 EMAIL: info@emergingglobaladvisors.com 16