Graphic: Higher returns, lower risk for active emerging markets equity
Active emerging markets equity separate account composites have largely outperformed the MSCI Emerging Markets index over multiple periods. The index has heavy concentrations in Asia, notably China, Taiwan, India and South Korea, giving active managers an opportunity to capitalize on attractive valuations relative to developed markets.
Back in black: Like other asset classes, emerging markets equities have rebounded this year. The MSCI Emerging Markets index has returned 7.4% through Aug. 9 after losing 20.1% in 2022. In June and July, the index posted 3.8% and 6.2% gains, respectively.
Index returns as of Aug. 9
Active outperforms: Most separate account composites have topped the passive MSCI Emerging Markets index. The median one-year return for the period ended June 30 was 6.3%, and the median standard deviation was 22.2%, based on data from Morningstar Direct. The index returned 1.7%, with a 24.5% standard deviation during that span.
EM separate account risk and return
| SA returns | One year | Five years | 10 years |
|---|---|---|---|
| 25th percentile | 2.5% | 0.6% | 2.8% |
| 50th percentile | 6.3% | 2.0% | 3.7% |
| 75th percentile | 11.1% | 3.6% | 4.6% |
| MSCI EM index | 1.7% | 0.9% | 2.9% |
| SA standard deviations | One year | Five years | 10 years |
| 25th percentile | 19.1% | 19.0% | 16.8% |
| 50th percentile | 22.2% | 20.0% | 17.3% |
| 75th percentile | 24.5% | 20.8% | 18.0% |
| MSCI EM index | 24.5% | 18.9% | 16.9% |
Index toppers: Over the past year ended June 30, 182 separate account composites surpassed the passive index and 46 lagged. Out of the winners, the median return was 8.4%, and the median standard deviation was 22%.
Benchmark beaters' risk and return
Going active: Roughly 70% of pension fund assets invested in emerging markets were actively managed, based on plans that provided data to Pensions & Investments for its report on the 1,000 largest retirement plans.
DB fund investment in EM equity, by type
Sources: Bloomberg LP, Morningstar Direct, Pensions & Investments
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