• Geographic diversification reduces specific vulnerabilities, balancing risks within portfolios.
• Emerging markets offer exposure and diversification, with cycles less synchronized to developed economies. This broadens the spectrum of opportunities and strengthens portfolio resilience.
• FlexFunds offers an asset securitization program to enhance the liquidity of investment strategies. Contact our team of experts.

Portfolio diversification plays a key role for asset managers amid today’s volatile environment.

The shocks seen in economies and assets traditionally considered “safe havens” are reshaping the playing field for asset managers.

The global weakness of the U.S. dollar observed throughout the year — which led the DXY index to record its worst half-year since 1973 between January and June — has shaken its position as a refuge.  

To this, we must add other sources of uncertainty, such as the recent downgrade of the U.S. credit rating by Moody’s and doubts surrounding the direction of interest rates.

These factors challenge managers to be more resilient and strategic as assets in emerging markets gain attractiveness.

Given current challenges, the strategic selection of both assets and geographic exposure makes the difference in a manager’s response plan.

Historically, portfolio diversification has focused on strategic assets that provide protection against macroeconomic shocks and global volatility.

Liquidity and resilience against inflationary pressures have been key criteria when selecting investment vehicles over time.

Geographic diversification strengthens portfolio stability by cushioning localized risks and sustaining balanced returns.

However, within asset managers’ strategies, exposure to different geographies is becoming increasingly relevant.

This comes amid the rise of other markets offering exposure to assets that could benefit from the current environment, such as commodities.

In this context, emerging markets — including Latin America and the Caribbean — are being perceived as an opportunity for portfolio diversification.

Signals from the Federal Reserve at Jackson Hole pointing to potential interest rate cuts could help ease risk aversion.

This may lead asset managers toward emerging markets to capitalize on returns from local assets and currencies.

In this regard, a Bank of America analysis noted that in a scenario of “a weaker U.S. dollar, U.S. bond yields peaking, China’s economic recovery … nothing will work better than emerging-market stocks.”

According to the report, cited by CNBC, emerging markets could be “the next bull market.”

Global impact on portfolios

In an increasingly globalized and interconnected world, asset managers are adapting their strategies around strategic geographic exposure.

By investing in assets with low correlation — whether due to geography, economic sector, or currency — portfolio risk is reduced, and sources of return are diversified, according to BlackRock.

Some financial instruments, such as exchange-traded funds (ETFs), can help provide that geographic exposure.

Regional and global ETFs allow diversification by investing across various markets and regions.

This strategy reduces concentration in a single country and opens the door to opportunities in both developed and emerging economies.

Among so-called thematic ETFs are those that target specific regions, driven “by themes like geopolitics & demographics,” as explained by asset manager BlackRock.

An ETF, for instance, may replicate the performance of the MSCI Emerging Markets Index, which includes large and mid-cap companies across 24 developing countries.

The MSCI Emerging Markets Index posted a 17.71% gain year-to-date as of September 1, outperforming the 9.78% return of the S&P 500 over the same period.

Portfolio diversification can provide protection even amid challenging and volatile macroeconomic contexts.

Why diversify in emerging markets

Investing in emerging markets allows portfolio diversification due to their lower correlation with developed economies, reducing risks and broadening sources of return.

These economies are experiencing accelerated growth thanks to favorable demographics — a larger share of working-age population — and expanding domestic consumption.

According to the World Bank’s Global Economic Prospects report, growth in emerging and developing economies is projected at 3.8% for both this year and 2026.

In contrast, advanced economies are expected to grow by 2.3% in 2025 and 2.4% in 2026.

Additionally, emerging markets trade at lower valuation multiples compared to developed markets, creating room for future convergence.

Accessing emerging markets diversifies portfolios, adds growth potential, and reduces dependency on mature economies such as the United States.

Although emerging markets involve greater volatility and currency risk, their return premiums — along with the added appeal of a weaker dollar — make them a strategic opportunity.

Moreover, the sectoral diversity within emerging economies allows investors to capture opportunities not only by geography but also across key industries with growth potential.

Dodge & Cox, a U.S. mutual fund company, explains that “a portfolio reflecting a blend of emerging and developed markets indices would have generated higher returns than a developed markets-only portfolio, with only a small increase in volatility.”

For asset managers — including FlexFunds’ clients — incorporating exposure to these economies can help mitigate dependency on developed markets and broaden sources of return in volatile global environments.

FlexFunds and global diversification

FlexFunds offers an asset securitization program that enables managers to enhance the liquidity of their strategies and access more efficient global diversification.

The firm designs independent, exchange-listed investment vehicles that facilitate the international distribution of strategies and improve the geographic exposure of portfolios.

These listed products (ETPs) are structured to be linked to underlying assets or diversified portfolios, such as index funds, REITs, or private investment funds.

By securitizing liquid, illiquid, listed, and alternative assets, FlexFunds provides transparency and flexibility — helping managers reduce concentration and expand sources of return.

With a global presence, FlexFunds partners with asset managers to create solutions that optimize diversification and strengthen exposure across various regions and markets.To learn more about FlexFunds’ solutions, do not hesitate to contact our team of specialists.

Sources:

• https://www.cnbcafrica.com/2025/emerging-markets-said-to-see-the-next-bull-run-as-the-sell-u-s-narrative-gains-ground
• https://www.blackrock.com/mx/intermediarios/educacion/que-es-diversificacion
• https://www.worldbank.org/en/news/press-release/2025/06/10/global-economic-prospects-june-2025-press-release
• https://www.reuters.com/markets/us/em-portfolios-see-second-biggest-monthly-inflow-four-years-iif-data-shows-2025-08-13