Breaking away from commodities

Historically there has existed a strong correlation between emerging markets and commodities returns. As seen in the chart below, a decoupling has occurred in recent years, with a gap that continues to widen. While commodity correlation still exists in emerging markets, especially in energy-rich countries such as Brazil and Russia, the divergence between the two indices shows that there are other meaningful drivers of performance in these countries.

For example, five years ago the technology sector made up 14% of the MSCI Emerging Markets Index, whereas today it makes up 26%. Conversely, the energy sector has been cut in half over the past five years as the sector went from almost 14% of the index to less than 7% today. (Source: FactSet as of March 31, 2012, and March 31, 2017.)

Data: FactSet, as of June 22, 2017

What this means for investors

Developing economies may be benefiting from a rising consumer class, structural government reforms, and a mix of well-run businesses. A skilled active manager can help investors identify and take advantage of new opportunities that arise from the structural shift in emerging markets.

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.

Investments in small and/or medium-sized companies typically exhibit greater risk and higher volatility than larger, more established companies.

Index performance returns do not reflect any management fees, transaction costs, or expenses.

Indices are unmanaged and one cannot invest directly in an index.

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

The Thomson Reuters/CoreCommodity CRB Index is a widely recognized measure of global commodities markets. It is made up of 19 components considered to be significant commodities, including silver, sugar, wheat, aluminum, and soy beans.


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