The backdrop for emerging market investment is still favorable in a variety of ways. For example, we are looking at economies that as a group are growing at over twice the pace of the developed world, and have younger populations and generally have a growing middle class with expanding purchasing power. These countries also have upside potential from economic reform and regulatory improvement.
You see, emerging markets is an asset class in which investor sentiment can be quite extreme.
In addition to incorporating company-specific fundamentals, markets can and do overreact to macroeconomic and political events. This can give rise to mispricing of companies, and we aim to take advantage of this mispricing to build attractive investment portfolios.
From a general investment perspective, emerging markets can help investors enhance return potential and improve diversification by expanding their investment universe beyond U.S. or developed markets.
After many years of positive U.S. equity returns, EM valuations look very attractive to us in both an absolute and a relative basis and in addition offer the least correlation to the U.S. market.
The MSCI World Index with net dividends measures equity market performance of developed markets.
The MSCI EAFE Index with net dividends measures equity market performance of developed markets in Europe, Australasia, and the Far East.
The Russell 2000 Index with gross dividends measures the performance of the small-capitalization segment of the U.S. equity universe.
The MSCI Emerging Markets Index with net dividends measures equity market performance of emerging markets.
The MSCI Emerging Markets Small Cap Index measures small cap equity market performance across emerging markets.
The S&P 500 Index with gross dividends measures equity performance of 500 leading companies in industries of the U.S. economy.
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Diversification does not assure a profit or protect against a loss in a declining market.
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