Pictet Emerging Markets Rising Economies ETF (RISE)

The Pictet Emerging Markets Rising Economies ETF (ticker RISE) approaches emerging markets through a different lens than traditional index-based funds. Rather than holding a broad basket of the largest companies in the most developed emerging economies, RISE selects countries and companies based on a manager’s view of which emerging economies have the strongest structural growth tailwinds. The premise is that some emerging markets will grow faster than others not by accident, but because of demographic momentum, improving institutions, or favorable geographic positioning, and a skilled manager can identify and overweight these winners.

The global economy has two tiers for most investors: developed markets (the United States, Western Europe, Japan, Australia) where growth is slow, capital is abundant, and competition is intense; and emerging markets, a large and varied group including India, Brazil, Southeast Asia, Eastern Europe, and parts of Africa. Emerging-market stocks have long attracted investors hunting for faster growth, but the bucket is imprecise and lumpy. Some “emerging” economies are stagnant, resource-dependent, or plagued by poor governance. Others are compounding at 5, 6, or 7 percent a year with demographics, education systems, and institutional improvement to sustain it. The index approach — weight countries by their market capitalization — does not distinguish between these extremes. RISE tries to.

The fund’s framework starts with demographics. Countries with young, growing populations and rising labor forces have tailwinds for consumption, housing, and productivity. India, for instance, has nearly 1.4 billion people and a median age of 28 — most of the population is working-age or soon will be. The Philippines, Nigeria, and parts of Southeast Asia share this profile. In contrast, Russia, Japan (technically developed), and some Eastern European countries have aging populations and shrinking workforces, which is a long-term headwind no matter how good the government’s policies are. RISE’s manager looks for countries on the growth side of this demographic curve.

The manager also considers institutional and structural factors: Are institutions improving? Is education expanding? Is the rule of law strengthening, or is corruption entrenched? Are infrastructure and connectivity improving? Are currencies stable or trending weak due to political dysfunction? This is harder to measure than simple demographics, and reasonable observers disagree on the answers, but the framework lets the fund avoid regions where political risk, currency risk, or institutional decay are high.

From this geographic lens, the manager tilts the fund toward countries and the companies within them that fit the profile. India and Vietnam might be overweighted relative to a typical emerging-market index; Russia and parts of the Middle East might be underweighted or excluded. Within each country, the manager selects stocks — often large-cap names, sometimes mid-cap — that benefit from the country’s growth story. A telecom company in India, a consumer-goods firm in Vietnam, a bank in the Philippines — these benefit from rising incomes and expanding consumption.

The fund’s active approach comes with costs. The expense ratio is higher than a passive emerging-market index fund because the manager is conducting original research, making country-level allocation decisions, and turning the portfolio as views change. This cost is one reason many investors prefer to buy a cheap emerging-market index fund and accept whatever allocation comes with market-cap weighting. But the manager’s bet is that the extra insight — picking countries and stocks with better structural positioning — can generate enough alpha to justify the fee.

RISE is exposed to the full range of emerging-market risks: currency fluctuations (the dollar versus the Brazilian real, the Indian rupee, the Mexican peso), political instability, corporate-governance issues that would be unthinkable in developed markets, and the fact that many emerging-economy stocks are less liquid and less widely followed than U.S. or European stocks. If the U.S. dollar strengthens sharply, RISE will likely suffer because the dollar value of emerging-market returns falls. If an unexpected geopolitical shock hits a key region, the fund can decline steeply.

The demographic story is long — it plays out over decades — so RISE is not a tactical trading vehicle. It is designed for investors with a multi-year horizon who believe emerging-market growth will continue, who trust that the manager’s country selection will be better than passive index weighting, and who can tolerate currency swings and the occasional sharp selloffs that emerging markets experience. In bull markets for emerging markets, the active geographic bets often pay off; in bear markets, the fund may decline faster than a passive alternative because the manager’s conviction positions amplify moves.

A reader interested in RISE should examine the fund’s country allocation, the underlying stock holdings, and the manager’s published investment thesis on why certain countries are positioned for faster growth. The prospectus outlines the investment objective and the geographic constraints the manager operates within. Comparing RISE’s long-term returns, net of fees, to a simple emerging-market index fund like those tracking the MSCI Emerging Markets index is the ultimate test: does the manager’s active approach and structural insight generate enough outperformance to justify the higher cost?