Emerging markets: Taking a long-term perspective

With the current environment of market volatility, ratcheting-up trade tensions, and currency unpredictability, it’s easy to understand investors’ uncertainty about emerging markets equity. However, as seen in the chart below, volatility within emerging markets equity is nothing new.

Over the past 15-plus years, emerging markets equity has been one of the most volatile asset classes, as measured by standard deviation (last column on right). Standard deviation is a measure of volatility and an indicator of risk. Emerging markets equities, as measured by the MSCI Emerging Markets Index (net), have also generated among the strongest returns (appreciating 433% cumulatively) during that time period. (Source: Morningstar, for the period Jan. 1, 2003 to June 30, 2018.)

Expand Collapse

Emerging Markets: Taking a long term prospective

Source: Morningstar. The following indices were used to represent each asset class: Emerging markets equity – MSCI Emerging Markets Index (net); small-caps – Russell 2000® Index; international equity – MSCI EAFE Index (net); real estate investment trusts (REITs) – FTSE NAREIT Equity REITs Index; high yield – Bloomberg Barclays US Corporate High-Yield Index; large-caps – S&P 500® Index; commodities – Bloomberg Commodity Index; and fixed income – Bloomberg Barclays US Aggregate Index.

* Year to date through June 30, 2018

What this means for investors

Maintaining a long-term perspective is key for investing in any asset class, but especially for volatile ones. As investors considering investing in emerging markets ask, “Why now?”, we would argue that emerging markets should always be considered in creating a well-diversified portfolio of investments. After investors carefully consider its risk, emerging markets equity may provide an attractive solution for those investors seeking growth.

The MSCI Emerging Markets Index measures equity market performance across emerging market countries worldwide. Index “net” return approximates the minimum possible dividend reinvestment, after deduction of withholding tax at the highest possible rate.

The Russell 2000 Index measures the performance of the small-cap segment of the US equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index, representing approximately 10% of the total market capitalization of that index.

The MSCI EAFE (Europe, Australasia, Far East) Index (net) is a free float-adjusted market capitalization weighted index designed to measure equity market performance of developed markets, excluding the United States and Canada. Index (net) return approximates the minimum possible dividend reinvestment, after deduction of withholding tax at the highest possible rate.

The FTSE NAREIT Equity REITs Index measures the performance of all publicly traded equity real estate investment trusts (REITs) traded on US exchanges, excluding timber and infrastructure REITs.

The S&P 500 Index measures the performance of 500 mostly large-cap stocks weighted by market value, and is often used to represent performance of the US stock market.

The Bloomberg Barclays US Corporate High-Yield Index measures the US dollar-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on indices’ emerging market country definition, are excluded.

The Bloomberg Commodity Index is composed of 22 exchange-traded futures on physical commodities.

The Bloomberg Barclays US Aggregate Index is a broad composite that tracks the investment grade domestic bond market.

Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.

Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company.


Investing involves risk, including the possible loss of principal.

Past performance does not guarantee future results.

International investments entail risks not ordinarily associated with US investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations.

Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume.


Subscribe to hear from our portfolio managers and analysts on trending topics

I'm interested in hearing from:
Or select:

Subscribe to Insights

Thank you for your subscription!

Top charts of the month