One of the typical arguments for diversification into emerging market equities is that they have a low correlation with the developed markets. From a portfolio perspective this is clearly an attractive attribute. The case for “radical diversification” rests on the existence of asset classes that do not perform in line with the developed markets.

The hottest segment of the emerging markets has been BRIC funds (short for Brazil, Russia, India and China). The large, liquid and fast growing nature of these markets lead to strong performance leading up to the most recent emerging markets correction. In the past we have noted that the BRIC phenomenon was primarily marketing driven. For most investors broad-based emerging market exposure is probably more appropriate.

Since these markets became the darlings of the fast money set, like hedge funds, their returns have become more correlated with the rest of the world. This clearly lessens their diversification benefits. According to a mutual fund company has created an emerging market equity fund with this problem in mind.

They report that Eaton Vance has a fund that is designed to be less correlated with the rest of the world. By emphasizing smaller countries they believe they can generate both competitive returns and a better portfolio diversifier.

While we do not endorse this fund, or any specific fund, it is an intriguing concept. The only question is whether the ancillary portfolio goal, i.e. lower correlations, will harm the generation of returns. While the answer to that question is unclear, it is interesting to see firms focus on products that aid in the process of broad-based diversification.

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Please see disclosures here.

Please see the Terms & Conditions page for a full disclaimer.