Factor Investing in Emerging Markets: From Theory to Practice

This article tests a comprehensive end-to-end framework for factor investing in emerging markets, showing that a disciplined, risk-aware approach can deliver robust and scalable portfolios. Our framework builds on widely accepted global factor principles and evaluates their robustness in the demanding context of emerging markets. Using data from 33 emerging countries between 2000 and 2025, we analyze value, momentum, and quality factors and reaffirm that, similar to developed markets, enhanced factor constructions significantly outperform generic approaches. Enhanced emerging markets multifactor portfolios achieve Sharpe ratios up to 1.43—nearly 70% higher than their generic counterparts. Long-only implementations of these enhanced strategies deliver net information ratios of 0.98 and transfer coefficients of 0.51—well above the 0.75 and 0.42 observed for generic strategies. Importantly, nearly 90% of active return in enhanced implementations is explained by factor exposures, compared to only 60% for generic approaches, underscoring better control and transparency of the enhanced portfolio outcomes. Our results highlight that when clean signals, integrated design, disciplined implementation, and robust risk controls are combined, emerging market factor investing can become a scalable and systematic source of alpha.