Red-hot emerging market equities have trounced U.S. and global developed stocks over the past 12 months, according to analysis from Russell Investments.
In the 12 months ending June 30, the MSCI Emerging Markets Index produced a 22.7 percent annualized return, compared to an 18.5 percent return for U.S. equities in the Russell 3000 index and an 18.9 percent return for global developed stocks in the MSCI World Index.
Yet things weren’t always so easy for Kevin Carter, founder and chairman of EMQQ, the Emerging Markets Internet and eCommerce ETF. After launching EMQQ in November 2014 at approximately $26 a share, the fund lost 28 percent of its value in a little less than 10 months, closing at $18.85 in September 2015.
“We had sales guys and advisors telling us that literally, they couldn’t sell emerging markets, it’s a non-starter,” says Carter. “Now, they don’t care, advisors in particular want emerging markets products. It’s sentiment combined with solid growth from those economies.”
Since bottoming out in September 2015, EMQQ has grown by 85 percent.
Emerging markets continue to outperform year-to-date with the MSCI Emerging markets index delivering 17.9 percent returns through the first half of 2017, compared to 11 percent for the MSCI World Index and 8.9 percent for the Russell 3000.
But emerging markets underperformed U.S. equities by a wide margin over three-, five- and 10-year periods ending on June 30, 2017.
“It’s really the comparison to U.S. stocks that was problematic for emerging markets, because during these periods U.S. stocks have done extraordinarily well,” says Erik Ristuben, chief investment strategist for Russell Investments. “There were some specific emerging markets issues, too, for example, a soft patch in Chinese economic data. Finally, the U.S. dollar was very strong through most of those time periods.”
On the fixed income side of the universe, emerging market bonds have outperformed American bonds over one-, three-, five-, 10- and 20-year periods ending June 30, 2017.
A weakening U.S. dollar is helping to fuel the emerging markets turnaround, says Ristuben.