What’s in a Name? How Emerging Markets Got a Market-Wide Investment Rebrand
Today, raising assets for an emerging markets fund is much more straightforward than in years past. The class is much more pervasively used and tracked, with most well-known investment management firms offering strategies that incorporate emerging markets. In fact, allocators now cite the category as central to a balanced portfolio’s diversification and growth potential. Of course, the category can be a bit volatile, but looking at recent results, returns for 23 out of the 26 MSCI single country indexes in emerging markets are positive year-to-date through October 30th, with 19 of those boasting 15% or greater returns¹.
But, despite its current success, this asset class was not always an easy sell to investors. During the 1970s and early 1980s, even the industry’s top sales teams struggled to sell emerging market funds—as even mentioning class brought fear and anxiety quickly to mind. What changed?
Back then, emerging market countries were known as Less Developed Countries (LDCs). The funds that invested in these LDCs were likewise called Third World Funds. Naturally, pitching a Third World Fund to investors and investment advisors was a tough sale, and many avoided the fund class. And with strong domestic growth, conventional wisdom left investors asking, “Why would anyone need to look beyond America?”
This all changed in 1981 when a man named Antoine W. Van Agtmael, the then deputy director of the capital markets department of the IFC, coined the term “emerging markets” during an investors conference in Thailand2. Before the term entered the investment lexicon, the industry viewed third world nations as little more than financial sinkholes to be avoided. Agtmael knew how branding these developing nations as ‘third world’ reinforced a negative connotation, which has the effect of impeding any efforts to generate interest and investment. This is a prime example of the power of investment company branding.
There is, obviously, no substantive difference between a third world fund and an emerging market fund, except in the name. But by changing the category name and associated “brand”, these funds saw a notable improvement in marketability.
This example certainly underscores the importance of branding in the investment world, as even the most sophisticated of institutional investors’ perceptions can be swayed by core investment fund and category naming and positioning. Branding can impact the psychology of any investor and effective investment branding strategies can have a profound impact over the long term.
When we look at the popularity of emerging market funds today, Agtmael’s genius is clear. As of August 2017, emerging market hedge funds assets were $213.3B, almost 10% of the $3.1 trillion total for the industry3. And, emerging market mutual funds and ETFs has seen over $26B in inflows in just a little over the first half of 20174. Emerging markets have proven to be one of the most attractive equity classes since the era of the Asian Tigers, and these funds have experienced tremendous growth and development through private investment in these countries.
This lesson, of course, goes beyond just renaming asset classes to improve their popularities. It demonstrates the importance of positioning and messaging when communicating an investment company, product, or strategy to investors. Investing is as much an emotional decision as it is a rational one, and it is important to address both of those concerns when creating your investment-related brand message. The term “third world” may evoke ideas of destitute communities and corrupt politicians, while “emerging markets” conjures ideas of growth and dynamicity. The product is of the exact same quality, but the messaging makes all the difference.
Creating the right image and brand message is critical to winning over investors, especially as competition increases and investor attention spans wane. In 2016, there were 9,511 mutual funds and just under 10,000 hedge funds. With the exception of the rare fund blowing competitors’ returns out of the water, most funds will need to look at ways to differentiate themselves through other means. This kind of strategic thinking and investment branding strategy can help create your competitive edge. A thoughtful and strategic look at your mutual fund, alternative fund or investment strategy marketing can provide a real boost to both grabbing an investor’s attention and defining yourself as a unique asset manager.
If you’d like to explore what a strategic look at your marketing message can do for your growth, give us a call, or check out our branding case studies.