Graphic: Pockets of strength in emerging markets
Although returns of the MSCI Emerging Markets index have trailed U.S. and developed markets indexes, there have been pockets of strength in certain countries. The index has a large weighting to Asian countries, particularly China, creating an opportunity for active managers to pursue other emerging markets.
Underperformance: The MSCI Emerging Markets index’s total return has lagged the MSCI World and Russell 3000 indexes over the past 10 years through October. The EM index has returned -0.3% so far in 2021, rebounding from -1.2% through Q3.*
Index returns
Big Asia weight: The MSCI index is heavily weighted toward Asian countries. In particular, China has the largest weighting at 35%, followed by Taiwan’s 15%, and South Korea and India, each at about 12%.
MSCI EM index weighting by country
Taiwan leads: Returns of the MSCI Taiwan index have exceeded the MSCI Emerging Markets index over one-, three- and 10-year periods. It also had the lowest standard deviation among the four largest constituent countries over the past three, five and 10 years. Notably, Taiwan Semiconductor Manufacturing Co. Ltd. makes up nearly 45% of the index.
Returns (left axis) and Sharpe ratios (right axis) by country index
Active edge: More than two-thirds of actively managed accounts topped the MSCI Emerging Markets index over the decade ended Sept. 30, based on data provided by Morningstar Inc.** Among those that topped the benchmark, the median performance was 7.59%.
10-year fund performance vs. MSCI EM index
*Net U.S. dollar returns. **Separate accounts performance is gross of fees. Sources: MSCI Inc., Bloomberg LP, Morningstar Inc.
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