The growing importance of emerging markets has been a theme for some time, and yet investors – particularly in the US – still lump them together as a group despite the differences between them.

Robin Thorn, global head of equities at PineBridge Investments, argues that investors should take a more targeted approach, as the firm sets out in a paper published this month*.

Thorn’s relocation to Hong Kong this year from New York to drive the Asian equities business indicates that the region is a priority for PineBridge. And investors in Asia are, he says, more receptive to the idea of allocating more selectively to EM equities than those in Europe, who in turn are more open to the concept than those in the US.

It’s perhaps not surprising that the firm is advocating this approach. PineBridge has offices in 12 developed and 19 emerging markets, with equity investment staff on the ground in 14 locations. Of its $69.5 billion in assets under management, $15 billion is in equity assets, of which 56% is in emerging markets.

“Too many investors globally still believe they have emerging markets covered with a single GEM [global emerging markets] fund or index exposure,” says Thorn. “But different regions and even different countries within regions have very different drivers.”

He admits this is not a new idea, but says it’s one that investors should be more focused on.

The problem with simply buying a GEM index is that you are likely getting exposure you don’t necessarily want, rather than to domestic, structural EM growth, says Thorn.

For example, in the case of the MSCI EM index and many GEM funds, there is a bias towards state-owned enterprises and government-influenced companies. In particular, as of October, six of the 10 largest EM Index weights were in companies with substantial government ownership: Gazprom, China Mobile, Petrobras, Vale, ICBC and CNOOC.

“That’s not necessarily a bad thing,” says Thorn, “but it may not give you the shareholder focus you might want.”

He also points out that some supposedly emerging markets in the index are in fact quite developed economies – such as South Korea and Taiwan. “Again, this is not necessarily a bad thing, but you need to be aware of it.”

A more targeted approach could help to cushion investors against present headwinds from Europe and the US. What investors should be aiming to do is “de-emphasise” parts of GEM markets reliant on European and US growth, says Thorn.

India, for example, has some of the most attractive demographics in the world, a long-standing democracy and high levels of domestic consumption, he notes. In addition, the country is a net importer of commodities, unlike most emerging markets, which means in times of slower global growth, lower commodity prices particularly help India by cutting inflation.

Thorn also favours Indonesia and Latin America. The latter region has a relatively transparent political environment and a strong baby-boomer middle-class generation to drive consumption, and the approach of the World Cup in Brazil will also add to growth. “All these driving forces will have an effect regardless of what happens in Europe or the US,” adds Thorn.

* Looking beyond GEM: Optimising global emerging markets equity exposure through targeted regional allocations.