Emerging markets continue to be an asset class that many investors are frustrated with performance wise. Although it may feel like emerging markets (both debt and equity) are always down and have negative returns, this is simply not true.
This is certainly a more volatile asset class and that may add to the perception given more recent returns, however, over longer time periods (3, 5 and 10 years) emerging markets have provided positive total returns. Furthermore, 2017 annual returns were exceptional, topping both domestic and developed international returns, but how quickly this seems to be forgotten.
Below highlights this fact when looking at period returns for both emerging market equity and debt indices as of 9/30/2018.
|Index||Total Return YTD||
Total Return 1 Yr
Total Return Annlzd 3 Yr
Total Return Annlzd 5 Yr
Total Return Annlzd 10 Yr
|Annual Return 2017|
|MSCI Emerging Market Equity||(7.39)||(0.44)||12.77||3.99||5.76||37.75|
|JPM Emerging Market Bond Global USD||(3.04)||(1.92)||6.04||5.38||7.54||10.26|
The U.S. dollar has a big influence over emerging markets. Typically, a stronger dollar will dampen emerging market returns and a weaker dollar is a boon to emerging markets. Interest rates can also have an effect. The following breaks down why this relationship exists, in general, between the U.S. dollar and emerging markets.
While it may be tough to endure times like this, we believe that maintaining exposure to emerging markets is important for the long-term success of a globally diversified portfolio.
Washington Trust Bank believes that the information used in this study was obtained from reliable sources, but we do not guarantee its accuracy. Neither the information nor any opinion expressed constitutes a solicitation for business or a recommendation of the purchase or sale of securities or commodities.
Derrick Wilson is a Portfolio Manager of Manager Selection and Due Diligence for Washington Trust Bank’s Wealth Management & Advisory Services. He is responsible for all external investment manager analysis, selection, monitoring and retention. Derrick holds a BA from Eastern Washington University and MBA from Gonzaga University.