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Among EM managers, the median local manager is performing 300 bps better than the median US-based manager (based on five year history, dataset of 3000 BAIF open-end equity growth funds). Typically, the median US-based manager is hugging the index while loosing its management fees and transaction costs. The right chart reveals that only 30% of US-based EM managers have exceeded their index. By contrast, the median local manager is earning its fees and showing positive value-added from enhanced index management, by reducing weights of mega-cap and high-volatility stocks. Most EM are far from efficient due to large information asymmetries, allowing active locally-based managers to perform much better than top US-based managers. In fact, the performance edge for top-quartile managers widens to 600 bps, revealing the strong competitive advantage of leading EM local managers (without using leverage, reduced liquidity, or increased volatility). The left chart illustrates that 70% of local Brazilian EM managers have outperformed their index (three year performance data).

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