Emerging markets have been scaring a lot of investors lately — and that makes them just the sort of play that top strategist Rob Arnott likes.

“We think value in emerging markets, perhaps best illustrated by fundamental indexing, is really, really cheap,” Arnott recently told Canada’s Globe and Mail. “So to the extent that investors want equity investments, we think this is a wonderful time to fade their exposure in the U.S. and developed economies, and to rebalance into the deeply out-of-favour and unloved emerging markets. Emerging market debt has also fallen out of favour and is priced way out of proportion to the default risks. And we think that high-yield bonds still represent a modest opportunity.”

Arnott’s fundamental indexing approach involves weighting components of indexes by their economic fundamentals rather than market value. He says the approach has added about 1.5% to 2% annually compounded in the nine years it’s been live, across a variety of markets. “The simple fact is, fundamental indexing wins because of contra trading against the market’s most extreme bets,” he says. “Whatever the market is chasing most aggressively as a fad, that’s what we’re trading against. Whatever the market is shunning, that’s what we’re buying.”

Arnott says that using fundamental indexing in tandem with traditional indexing is a good approach. He also talks about the US market, which he sees as expensive but not in bubble territory.