Behind the Ticker: RISE Ditches the Usual EM Playbook
Looking to diversify your U.S. equity-centric portfolio? Emerging markets are touted as one of the best solutions, but these days they’re strikingly similar in tech concentrations to U.S. funds. Pictet’s Young Jae Lee offers a different perspective and approach to EM investing with genuine diversification via the RISE ETF on this week’s Behind the Ticker.
Young Jae Lee doesn't run a typical emerging markets portfolio, and he doesn't pretend to. The Senior Investment Manager at Pictet Asset Management spent this Behind the Ticker episode with host Brad Roth making a case that most of what Americans buy when they buy emerging markets isn't diversification at all. It's just tech risk wearing a different passport. His proof? The top five names in the MSCI EM benchmark (TSMC, Samsung, SK Hynix, Tencent, Alibaba) are functionally the same trade as the top five in the S&P 500 (Nvidia, Apple, Microsoft, Amazon, Alphabet). Both indexes run about 40% technology.
That thesis is the whole reason Pictet's new Emerging Markets Rising Economy ETF (RISE) exists. Its defining move is almost aggressive in its simplicity: it excludes Korea, Taiwan, and China, the three countries that together make up more than 70% of the standard EM benchmark. Lee's reasoning leans on the Solow Growth Model, which says GDP growth in developing economies is driven mainly by working-age population growth, not capital or technology. Korea and Taiwan have already aged out of that story so RISE instead builds around countries where the demographic engine is still running in countries like India, Brazil, Indonesia, Mexico, and South Africa. The resulting portfolio looks nothing like a typical EM fund, heavier in the financial and materials sector and extremely light on tech.
Population growth in emerging markets is the same kind of structural growth engine that AI is in developed markets, and it deserves the same portfolio real estate. With US portfolios increasingly concentrated, K-shaped, and AI-dependent (his words for what he's hearing from allocators constantly), Lee argues this is exactly the wrong moment to keep parking EM allocations in a fund that's secretly just more Big Tech. Add in the fact that emerging markets have historically earned more than half their total return from dividend yield rather than growth or multiple expansion, and the argument for real diversification, real downside protection, and a demographic tailwind the US doesn't have suddenly makes real sense.
To learn more about Pictet’s ETF lineup, go here.
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