Allan Conway, head of emerging market equities at Schroders in London, who manages about $27 billion across emerging and frontier markets, is expecting emerging markets to come back into their own this year.

The past two years were not great for the asset class, he said, and outflows from emerging markets – largely a result of retail investors taking out their money— combined with a dull global economy resulted in an underperformance not seen since the late 1990s.

But now, with emerging market valuations at such attractive levels, the U.S. market more costly and better prospects for global growth, “I don’t expect a third year of underperformance,” Conway said.

There are still many uncertainties, of course, that could change things for both developed and emerging markets – global geopolitics, the price of oil and a further strengthening of the U.S. dollar, which has placed a strain on a number of emerging market economies, to name a few. Nevertheless, “I think that emerging markets have a good chance to perform well and offer reasonable absolute returns,” Conway said.

Conway’s “cautious optimism” over emerging markets is based on three prevailing themes—themes he believes many investors over the past years have either forgotten about or have tended to ignore, for various reasons, but that are still extremely valid and supportive of the growth and strengthening of developing economies.

Firstly, “I believe that many people have lost sight of the fact that over the past 10 to 15 years, there has been a rise in the trade between emerging markets as opposed to emerging market-to-developed market trade,” he said. “The share of exports going from emerging markets to China, for example, far exceeds exports going from emerging markets to G7 nations. This dynamic will become even more pronounced and that makes a bull case for growth.”

The importance of domestic demand in fueling economic growth in the emerging markets is another issue that Conway feels investors may have lost sight of in recent times. But going by World Bank statistics, which predict that over the next 15 years the number of people whose disposable income will grow, thereby enabling them to rise through the ranks into the middle classes, will be the most significant in the emerging markets, this is a very important dynamic.

Finally, Conway said that the investments many emerging market governments are making in different sectors will provide a huge support to their growth going forward. These countries will be investing more in coming years and countries such as China and India are undertaking serious and meaningful reform that will have a “profound effect” on their future,  he said.

Conway has an oversight role for eight strategies managed by Schroders Emerging Market Equities team. These strategies include three global emerging market strategies (core, unconstrained and commodity equities), four regional emerging market strategies (Latin American, BRIC, Emerging Europe and Middle East) and a frontier markets strategy.

Overall, the emerging and frontier market strategies are underweight materials and energy, he said, based on the assumption that “we don’t think there’s much likelihood of a rally in commodity prices.” Those countries that export commodities—Indonesia, South Africa, Chile and Peru among them – are also underrepresented at the moment, while countries that benefit from the commodity price downturn like Turkey carry a higher weighting.

Conway is also extremely wary about Russia, “where every indicator seems to point to a disaster.” The Russian stock market, of course, is attractive from a valuation point of view, “but with everything that ‘s going on there, it looks like a value trap,” he said.