Heidi Heikenfeld, CFA, portfolio manager of OppenheimerFunds’ Emerging Markets Innovators strategy, believes investors who don’t add an allocation to small- and mid-cap stocks to their emerging market portfolios, and focus exclusively on large-cap equities, will fail to capture the full long-term growth potential developing markets offer.

With nearly 5,000 companies above $500 million in market cap, investors have many choices among innovative up-and-coming businesses that have strong long-term growth prospects, explains Heidi. That compares with only about 300 emerging markets companies above $10 billion in market cap, which does not leave a lot of room for potential growth.

Investors whose exposure to emerging markets comes through U.S., European and Japanese companies that sell products to consumers and businesses in developing markets are failing to maximize the potential of the emerging markets opportunity. They are missing out on the advantages offered by innovative local entrepreneurs who have a better understanding of the best ways to meet the needs of their home markets and customers, says Heidi.

In the accompanying videos, Heidi explains her views on how to minimize emerging markets portfolio volatility and the advantages of active over passive investment management.

For additional insights, please visit our Perspectives on Emerging Markets collection.

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