Key insights
- Global emerging markets have provided very strong returns for long term investors.
- However, investors must be prepared to accept higher volatility over shorter periods of 3 years and less.
- Significant performance dispersions across regions, countries, sectors and styles factors provide substantial opportunities for active managers.
- Smart-beta or factor strategies have delivered mixed results – while Minimum Volatility and Sustainability factor indices have delivered strong results, traditional factor indices such as Value and Growth have disappointed.
- The level volatility and dispersion of risk factor across major countries continue to rise, reflecting greater geopolitical risks and country level policy risks.
Emerging Market equities can be a source of strong returns over the long term.
Over the long term, emerging markets (EM) can be an attractive source of uncorrelated returns for investors. The total return chart (Exhibit 1) since 2005 shows EM equity has outperformed DM, World and Frontier markets by a notable margin. Investments in EM (unhedged) grew at an annual compound rate of 8.44% in comparison to a Developed Market (DM) average of 7.31% per annum, since 2005.
