EM FX: The case for passive vs. active management
Been thinking a lot about emerging market FX lately. We see the constant churn, the geopolitical overlays, the rapid shifts that make active management seem almost essential. Yet, when I look at the long-term track records, a significant chunk of that 'active alpha' just seems to erode after fees. Is the complexity of EM FX truly unique enough to consistently beat a well-constructed passive basket, or are we just chasing our tails, paying managers for the illusion of control? Maybe the spread of information and tighter markets means the edge isn't what it once was. For example, trying to predict the next big move like those we saw in specific regional currencies often feels like a coin flip despite all the high-level analysis. I'd genuinely like to hear some pushback on this. What am I missing?
That's a really interesting point about the erosion of active alpha in EM FX. I wonder how much of that is simply the market becoming more efficient over time, even with all the apparent complexity, versus managers just struggling to consistently capitalize on those rapid shifts.