‘Would you like that super-sized?’

In today’s fragmented global landscape, the question is no longer developed versus emerging markets, but whether a thoughtfully integrated exposure to both can unlock a broader and more resilient path to superior returns.

Most investors are very familiar with the emerging markets (EM)/developed markets (DM) market capitalisation split within the All Country World Index (ACWI). Chart 1 below shows how it is dominated by DM stocks. However, what is less well known is that the number of EM stocks (1200) is comparable to the number of DM stocks (1300).

Chart 1

This clearly means that the opportunity set is significantly expanded if a fund can also seek alpha opportunities from the EM universe.

However, the question this raises is whether this universe is investable.

Large universe of low-weighted stocks

To answer this, let’s start by considering the individual stock weights within the 2500 strong ACWI universe. Only 175 stocks have a weight that is greater than 0.1% and even more stark is the fact that 1250 stocks have a weight that is less than 0.01% or 1bps. This very long tail has been hugely exacerbated in global markets by the concentration challenges most indices now face, given the AI-related tech boom.

However, to put things into perspective, by only considering the top 500 stocks in the ACWI universe, we can highlight the ranking of some very well-known EM stock:

• Reliance Industries is the 2^nd largest listed share in India with a market cap of $217bn (R3.7tr) – yet it has a weight of approximately 0.20%
• Naspers is well and truly down the list, ranking at number 330, with a weight of less than 0.1%

Based on this analysis we can deduce that there are indeed thousands of possible alpha opportunities. Our philosophy centers on precise factor positioning rather than concentrated single-stock or country-level exposures. To this end, we impose disciplined active weight constraints relative to our ACWI benchmark, capping individual security active weights at ±1% and country-level deviations at ±3%. This means that we will never have massive EM bets, but rather seek to add incremental alpha.

Sizing up sector exposures across both markets

Zooming out, the current sector exposures across EM & DM makes for interesting reading. What we now see is a remarkably similar split across industries. The largest differentials are in healthcare, with 10% in DM but only 3% in EM, and financials, with 17% in DM but a far larger 22% in EM.

Prior to the COVID-19 epidemic the tech weight was higher in EM than DM, but with the rise of the US mega caps, we now see a similar tech weight in DM and EM.

In addition, following the global financial crisis there has been a sustained reversal in the DM financial sector dominance whilst EM financials have maintained a significant weight – mainly driven by the growth in Chinese banks.

Concentrating on developed and emerging market concentration

To better understand the EM opportunity set, it is worth drilling down into the 10 largest stocks in each index. From this list, it is evident that most of the EM top stocks, like their DM counterparts, are not regional players but companies boasting significant global revenue streams – companies like Taiwan Semiconductors (TSMC) which manufactures the world’s most advanced chips – or those that have market leading positions in the strategically important Chinese economy, such as Alibaba.

EM stock weight concentration is even more pronounced than DM concentration, however, it is important to note that there is far greater country diversification in EM relative to the DM universe which is dominated by the US.

The proof is in the performance

Our Old Mutual Global Managed Alpha (GMA) fund’s cumulative alpha since inception in the chart below illustrates how the combination of both EM and DM benefits global portfolios. Splitting this alpha into EM & DM, approximately 30% of our total alpha versus ACWI has been derived from the model’s EM stock picks. This can be considered ‘super-sized’ alpha, given that the Fund’s overall EM weight has never exceeded more than 15% of the total portfolio.

Chart 2

At the end of 2025, GMA reached two milestones: an eight-year track record and assets under management of $1bn. Chart 3 shows that the UCITS fund has consistently outperformed the ACWI benchmark. It is also worth noting that the fund ranks in the top quartile of the Morningstar peer group.

Chart 3

From a rand perspective, it is also worth pointing out that the unit trust feeder fund now has a two-year track record, is approaching R1bn in assets under management and has produced top quartile ASISA performance to the end of January 2026.

Uncovering opportunity in the unknown

To further highlight the opportunity set offered by EM inclusion and how this has added alpha to our fund, below are three companies we have selected that illustrate how our Fund’s model is able to pick relatively unknown EM companies. As opposed to predominantly focusing on the widely researched US mega caps, our investment approach has the ability to search the 2500 stock universe and select even better alpha opportunities. These stocks have small relative weights in ACWI but are anything but small companies.

1. ZTE Corp (China)

In South Africa, we know ZTE as a provider of cost-effective smart phones, but their business is far more diversified and produces a number of revenue streams, including cloud services. The company has 75 000 employees, operates in 160 countries and has a mkt cap of R430bn vs Vodacom’s mkt cap of R300bn.

1. Elite Material Co (Taiwan)

We have all heard of Taiwan’s largest company, TSMC, but what about Elite Material Co? It produces the downstream materials used for mobile phones, data centers etc. It has a market cap of R380bn – this is larger than almost all our SA Inc companies including our largest bank, FNB.

1. SK Square (South Korea)

While Samsung is a household name as Korea’s largest company, less known is SK Square. Its biggest profit driver is from SK Hynix, one of the world's top memory-chip makers. The stock has a market cap of R780bn. To put this into perspective, MTN & Vodacom’s combine market cap is R570bn.

A supersized solution

For most investors, super-sized returns is the obvious ultimate objective. Our analysis has demonstrated that the addition of the EM universe to DM creates a richer alpha landscape for stock selection, setting global investors up for such results. In conclusion, we see the same styles playing out across EM & DM, at the same time and can therefore make region-agnostic style tilts via bottom-up stock selection. DM

Author: Reza Fakie, Old Mutual Global Managed Alpha Fund Manager.