Lead-Lag Live
Welcome to the Lead-Lag Live podcast, where we bring you live unscripted conversations with thought leaders in the world of finance, economics, and investing. Hosted by Melanie Schaffer each episode dives deep into the minds of industry experts to discuss current market trends, investment strategies, and the global economic landscape.
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Lead-Lag Live
Narratives vs Numbers: Brendan Ahern on EM Growth, Dollar Flows, and What Investors Miss
In this episode of Lead-Lag Live, I sit down with Brendan Ahern, Chief Investment Officer at KraneShares, to separate narrative from data on non-U.S. and emerging markets.
From index-construction quirks to the impact of a weaker dollar, Brendan lays out why headline EM returns can hide powerful growth — and how investors might be looking in the wrong places.
In this episode:
– Why headline EM returns can mask strong tech-led performance
– How stripping out banks/energy/SOEs changes the EM picture
– What a weaker dollar means for global rebalancing out of U.S. equities
– Where growth actually lives: names like TSMC, Alibaba, Tencent, Mercado Libre
– How to think about EM “growth factor” exposure alongside broader EM allocations
Lead-Lag Live brings you inside conversations with the financial thinkers who shape markets. Subscribe for interviews that go deeper than the noise.
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What I think investors are missing is, if you think about what's propelled US equities over the last 16 years has been growth stocks, and the question then is is it that non-US equities haven't performed well, or is the definition of non-US equities potentially a bad one? And I think that's our argument at Cr shares.
Speaker 2:I'm your host, melanie Schaefer. Welcome to Lead Lag Live Now. Over the past decade and a half, us equities have dominated the global investing conversation, but that doesn't mean non-US and emerging markets have been standing still. There's a persistent misnomer that these markets haven't delivered, and in today's environment, with a weaker dollar and shifting growth dynamics, the story is far more complex. Joining me today is Brendan Ahern, chief Investment Officer at Crane Shares. Brendan's here to help unpack the reality of emerging markets and, I guess, shed some light on where investors may be overlooking some opportunities. It's great to have you here with me today, brendan.
Speaker 1:Thank you so much, Melanie. Thank you for the opportunity.
Speaker 2:So, Brendan, to start out broad, why do you think the narrative has taken hold that non-US and emerging market equities have underperformed for the last 16 years?
Speaker 1:Yeah, I think a little bit of this is over the last 16 years, and you know, remember, you know 16 years is 64 quarters of opening your brokerage account statement or meeting with your investment committee or board of trustees or directors and trying to figure out why do we hold these non-US equities that only underperform that since the global financial crisis low back in March of 2009, the S&P 500 is up almost 1200 percent and non-US equities as represented by the MSCI All-Country World Ex-US Index are up basically one third of that, almost 400 percent. So I think this constant US bull market has really caused many investors to give up on diversification, to give up on asset allocation, because just these non-US equities don't do anything but underperform, though I would argue that that argument misses a lot of anecdotal evidence about actually areas that have outperformed evidence about actually areas that have outperformed.
Speaker 2:So, when we strip away headline comparisons, how have emerging markets really performed relative to the US during that same period?
Speaker 1:So I mean MSCI emerging markets, so S&P, let's call it, will round up to twelve hundred percent Non-US equities, which obviously is EM. Plus develop is up 400. The MSCI emerging market index is only up 310% over the same time period. So just arguably a disastrous result. But what I think investors are missing is if you think about what's propelled, us equities over the last 16 years has been growth stocks and the question then is is it that non-US equities haven't performed well or is the definition of non-US equities potentially a bad one? And I think that's our argument at Crane Shares.
Speaker 1:And we're very well known for K-Web, our China internet ETF, because it's this growth factor for China. So we don't hold any financials, no energy, no industrials, and lo and behold, all of a sudden China has got good performance. You just got to pull out these growth beta names. And the exact same thesis works in emerging markets that if you strip out financials, energy, industrials, I mean some firms will be like oh, if you remove the SOEs, it's not that they're state-owned enterprises, it's that state-owned enterprises are banks and oil stocks. And if you just kick those out of your definition of EM, all of a sudden you have good performance.
Speaker 1:So the MSCI Emerging Market Technology Index has actually beaten the S&P 500 over the last 16 years. The problem is tech was less than 10% of the index 16 years ago. So the other 90% of let's call it value stocks or underperforming sectors way down the performance. So MSCI EM tech was up almost 1500% over the last 16 years, but the other 90% did so badly. It brought that EM index return down to 310%. So that's, we kind of took this K-Web thesis and created KEMQ, which just again it just pulls out this growth factor, this tech benchmark, from the broader EM index and, lo and behold, you've got good performance. So you know, I love these people who just say, oh yeah, you know, em it stinks, but maybe it's your definition of emerging markets is what stinks.
Speaker 2:Yeah, and so, brendan, you've just sort of pointed out the importance of separating factors inside emerging market indices as well. Can you explain what happens when we extract the growth factor from emerging market benchmarks?
Speaker 1:Yeah, I mean the key is you got to go in and get it, melanie, that you can't just buy broad-based EM because you're going to get these slow, no-growth sectors that dominate the benchmark. So you got to go out and extract them. And again, we did that with China, with K-Web, the largest China ETF in the United States, because we have this very differentiated performance characteristic. And we did this years ago with KMQ and I think investors would be shocked that, according to I mean, this is Morningstar data that year to date, kmq had a 769 active and passive EM index funds, em emerging market ETFs. It's the first percentile and that's after last year, 2024,. Kmq was in the fifth percentile. So it just shows when.
Speaker 1:And what I think is key is that this is part of when EM comes back, investors are going to gravitate to these growth stocks. Do you want to own ICBC Bank or Petrobras or PetroChina? I don't think so. I think you want companies like Taiwan, semi, alibaba, tencent. So that's literally what we've done in KMQ and I'm so proud of the results and still a small fund because I just think this story is really so out of sight, out of mind, because people don't realize yeah, there's been great returns in emerging markets and non-US stocks. You just got to go out and extract this growth factor.
Speaker 2:So, brennan, yeah, I want to touch for a minute on the currencies. With the US dollar I guess showing signs of weakness this year, what changes are you seeing in the relative performance of US versus non-US stocks?
Speaker 1:Yeah, I mean big picture. Part of this incredible 16 years of US equity outperformance has been the huge tailwind US stocks get from the dollar's appreciation. So, from its April 2011 lows, the US dollar index hit a peak of to call it like 50%, but it's come down. It's actually lost about 25%, about 14% off of its all-time highs. Now, there's a few factors there.
Speaker 1:Melanie One is, if I'm a non-US investor, if I'm an investor in Europe and I own US dollar denominated stocks because of the euro's appreciation, I'm actually losing money.
Speaker 1:S&p 500 might be up here to date. I'm down, and the same is true for yen, singapore dollar, taiwanese dollar. So I think you're seeing non-US investors are saying this dollar weakness is hurting my returns in US stocks and they're starting to rebalance and they own about $17 trillion of US equities and I'm not saying that's going to zero. I'm just saying, if it goes from 17 to 16 trillion, that rebalance, where's the money going to go? Is it going to go into these value names in Asia and Latin America? I don't think so. I think it's going into growth names like MercadoLibre, taiwan Semi Tencent, alibaba, anyway. So the dollar's weakness it might not affect your behavior as a US dollar investor. But I think it's worthwhile that you recognize how it's affecting global investors' behavior, because there is a global rebalancing. I think away from US equities and it's not again, it's not going to zero, I'm just saying it is going to weigh on US equities a little bit.
Speaker 2:Yeah, so that's what I wanted to ask is how important do you think that currency angle should be for investors who are allocating to emerging markets and do you think there will be an inflection point for the US dollar?
Speaker 1:I think you know traveling to visit our global institutional investors across the globe, you know there are concerns about the dollar weakness. There are concerns about the US political situation, this terrible bipartisan politics. There's concerns about the US budget deficit and again, us equities represent two thirds of global equity market cap. So it's just more of people are taking some profits, I believe, and reallocating that, and I think you're seeing that in the performance of non-US equities this year and I think particularly in non-US equity growth stocks, particularly in the EM space. So I think it's something just you know, as dollar investors, you don't necessarily see and feel that, but you know, talking to foreign investors, it is something that is of concern.
Speaker 2:Yeah, and so can we talk more specifically right now about KEMQ. How is it performing versus its EM peers and what differentiates it within the broader EM ETF landscape?
Speaker 1:I think. I think what's key to recognize is it's this growth factor relative to EM. So so you know, knock on wood, we've had some really good performance over the last two years, certainly when EM was really out of favor value stocks, high dividend stocks held up better. So that's where I don't necessarily say to people you shouldn't own broad-based EM, active or passive. I'm just saying if you're going to go in and reallocate, why not go overweight these growth stocks that KEMQ owns? That potentially it's a dial and it's a way to dial up your growth. And I think we see that in Asia, this real gross stock outperformance, you know. We see it in Latin America with, say, mercado Libre, you know there's a whole host of examples. So we're really constructive on the space, can tell we're constructive on the space. I mean as a shareholder in KEMQ I've been really happy relative to my cheap EM beta where I may have paid nothing but I got no performance for that.
Speaker 2:Yeah. So finally, Brendan, for investors looking at CreenShares lineup, or comparisons within the space, how should they think about incorporating QEMQ alongside your other China-focused products, such as the flagship K-Web?
Speaker 1:Yeah, I mean, I think first and foremost as a boutique asset manager, this is all we do, so we're not trying to be everything to everybody. So A we produce a whole heck of a lot of research on this space, so we want to help investors understand these companies, what their opportunities set. These aren't necessarily household names, necessarily here in the US. So one we want to earn the trust of investors through our research. But then certainly Cranesharecom backslash K-E-M-Q, you can get full transparency on the holdings and this performance.
Speaker 2:And where else you're active on social media, Brendan. Where can investors go to find out more about you and about the funds outside of, maybe, the website?
Speaker 1:Yeah, I mean certainly we do a whole host if it's LinkedIn. Yeah, I mean certainly we do a whole host If it's LinkedIn. On X, twitter, tiktok, just under the CraneShares handle, and certainly for myself I'm at Ahern underscore Brendan on X and also available on Twitter. I'm sorry on LinkedIn as well. But yeah, certainly you know, at info at Cresharescom, customer services job one, you know we're always available 24-7.
Speaker 2:Well, Brendan, thanks so much for joining me and thanks to everyone for watching. Be sure to like, share and subscribe for more episodes of Meat Leg Live. See you next time. Bye.
