Emerging markets account for about 14% of the world’s stock market cap, or $10 trillion in assets.[1] Companies listed in Brazil, Mexico, Taiwan, Korea, China, and India account for most of the assets in this sector.
Over the past decade, the S&P 500 has trounced the MSCI Emerging Markets Index by 207%. The S&P 500 is up 216%, while the emerging market index has barely budged, up a paltry 9%.
What’s the point of allocating assets to this sector if the returns are so poor? It’s a fair question. The main reason to add international investments to your portfolio is for diversification. During the lost decade from 2000 to 2010, the S&P 500 lost 24%, while emerging markets soared 102% – a difference of 126%. And until last June, the two indices were neck in neck for performance this century.
An allocation of 5% to 10% of your portfolio makes sense for emerging markets.
April 18, 2022
Note: Past performance is not an indication of future performance.
[1] DFA 2020 Matrix Book