Emerging markets vs SP 500

[Blue Collar Guy]

Just saw a chart on TV, EM vs SP 500 they are in a dead heat since 1990(when the EM started). They are only outperforming in the last year. Interesting. Maybe this is what John Bogle means with just buy the US,

[LOL!]

Maybe one should rebalance between them?

How many people on this forum have held either one since 1990? Yes, I thought so.

[MichaelB]

Which EM fund is used for the comparison? EM hasn't been around that long - the older funds date back to the late '90's.

[target2019]

https://engineeredportfolio.com/2017...onal-equities/

I saw a chart on the internet, and it told me that when you get in and how long you hold on is important.

[UnrealizedPotential]

One may come out ahead in the long run investing in EM. Speaking just for myself, even if a certain EM beats the SP500 say over a 20 year period, the amount of volatility to get there would be incredible and I would worry too much.

Being able to sleep at night should count for something. I will take the more boring, and possibly less rewarding US stock market.

[DrRoy]

Quote:

One may come out ahead in the long run investing in EM. Speaking just for myself, even if a certain EM beats the SP500 say over a 20 year period, the amount of volatility to get there would be incredible and I would worry too much. Being able to sleep at night should count for something. I will take the more boring, and possibly less rewarding US stock market.

+1

[MichaelB]

These comparisons going back decades are apples to oranges IMO. The MSCI EM Index includes 24 countries, and not all of them even had stock exchanges in 1980.

Emerging markets was first defined as an asset class in the mid-90's when the most common index - MSCI - for EM was designed. The largest EM component, China, at 28% of the index, first opened the Shanghai exchange in 1990.

EM is definitely an investable asset class (I have a large equity allocation.) I just think a comparison with the S&P or any other global developed index that dates back that far is, at best, misleading.

Investing in EM is no different than any other equity - it should be based on an expectation of future growth and value.

[Blue Collar Guy]

Quote:

Originally Posted by UnrealizedPotential One may come out ahead in the long run investing in EM. Speaking just for myself, even if a certain EM beats the SP500 say over a 20 year period, the amount of volatility to get there would be incredible and I would worry too much. Being able to sleep at night should count for something. I will take the more boring, and possibly less rewarding US stock market.

The volatility was the point the broadcaster was saying. he said too wild of a ride on the EM to get to the same place

[Blue Collar Guy]

Quote:

Originally Posted by MichaelB Which EM fund is used for the comparison? EM hasn't been around that long - the older funds date back to the late '90's.

I do not have a clue but i did find this.https://markets.ft.com/data/indices/...EF00000PUS:MSI. seems it goes back to 1988, when I did a sp500 overlay comparison its a dead heat.

[RobLJ]

I suppose a question is whether they (EM) would smooth returns, particularly in combination with international; if they are non-correlated to the S&P they could be valuable.
In the last decade markets are increasingly correlated, so this point may be less relevant. Myself, I've sold China and Pacific funds when they zoomed, then bought them back, like biotech.

[Montecfo]

just so much cheaper than US.

[Chuckanut]

The theory is that changing world demographics ( we are getting older, emerging countries are booming with babies) will give them an advantage in economic growth over the next few decades.

In theory.....

[YVRRocketSurgery]

I'm not willing to be the farm on EM but I also agree that it's kind of the place to be due to demographics. I currently have about 5% of my portfolio in EM funds but wouldn't mind increasing it to somewhere between 5-10%.

[dallas27]

EM is the majority of the world population, the majority of all land, and only 20% of modern finance. They default less than develop market and offer higher yields, and can increase productivity simply by copying other countries without the investment to innovate new things. Why would anyone not be heavy in emerging?

50 us
25 dm
25 em

[gerntz]

Quote:

Originally Posted by Blue Collar Guy Just saw a chart on TV, EM vs SP 500 they are in a dead heat since 1990(when the EM started). They are only outperforming in the last year. Interesting. Maybe this is what John Bogle means with just buy the US,

He very well may mean that. But that doesn't speak to next 30 years.

[gerntz]

Quote:

Originally Posted by UnrealizedPotential One may come out ahead in the long run investing in EM. Speaking just for myself, even if a certain EM beats the SP500 say over a 20 year period, the amount of volatility to get there would be incredible and I would worry too much. Being able to sleep at night should count for something. I will take the more boring, and possibly less rewarding US stock market.

I believe in diversifying. Avoiding an investment area due to its own volatility risks being overly exposed in other areas. As 10-20% of equity allocation, EM's added diversity trumps its volatility for me.

[NW-Bound]

To compare US stocks to the EM equities, I just looked at the two Vanguard MFs: VFIAX (S&P Index) and VEMAX (EM Index). The latter's inception date is 1994, so I have no data points prior to this.

From 1994 to mid 2000, S&P grew 3.8X while EM grew 1.2X. Huge difference of 3 times!

From mid 2000 to early 2009 (the bottom of the Great Recession), S&P dropped to 57 cents on the dollar, while EM still grew 1.4X after dropping from its high. Huge difference of 2-1/2 times.

From early 2009 to April 2011, S&P grew 1.9X, while EM grew 2.5X.

From April 2011 to Jan 2017, S&P grew 1.9X, while EM became 0.86X (dropped to 86 cents on the dollar). Huge difference again!

From Jan 2017 till now, S&P grew 1.13X, while EM grew 1.26X.

What lies ahead in the immediate future?

PS. I just corrected the erroneous swapping of the performance numbers for early 2009 to April 2011.

[audreyh1]

Quote:

Originally Posted by RobLJ I suppose a question is whether they (EM) would smooth returns, particularly in combination with international; if they are non-correlated to the S&P they could be valuable. In the last decade markets are increasingly correlated, so this point may be less relevant. Myself, I've sold China and Pacific funds when they zoomed, then bought them back, like biotech.

Quote:

Originally Posted by gerntz I believe in diversifying. Avoiding an investment area due to its own volatility risks being overly exposed in other areas. As 10-20% of equity allocation, EM's added diversity trumps its volatility for me.

Exactly! If you are rebalancing EM with other asset classes, then you can turn the "wild ride" to your advantage.

Personally I don't dice that finely and have international and international small cap, some of which may hold EM depending on the fund manager.

[target2019]

Quote:

Originally Posted by NW-Bound To compare US stocks to the EM equities, I just looked at the two Vanguard MFs: VFIAX (S&P Index) and VEMAX (EM Index). The latter's inception date is 1994, so I have no data points prior to this.

Try:
https://www.bogleheads.org/wiki/Simb...ng_spreadsheet

The page has a link to the latest spreadsheet discussion, and gdrive link. In it are values for VEIEX going back to 1985. There are many notes in the spreadsheet, so you need to check/understand the myriad of formula.

The makeup of the EM index has changed a lot since 1985. I don't have an analysis, but just looking at China for that period, EM 1985 is a very different pot than EM 2015.

OTH, S&P500 has changed, but it is just one economy.

[OldShooter]

Quote:

Originally Posted by dallas27 EM is the majority of the world population, the majority of all land, and only 20% of modern finance. They default less than develop market and offer higher yields, and can increase productivity simply by copying other countries without the investment to innovate new things. Why would anyone not be heavy in emerging?

Well, maybe because all that information is already included in the prices, plus some behavioral finance-derived growth premiums that will ultimately disappear and cause the sector to underperform. (Ref Jeremy Siegel's "Growth Trap")

Remember, a good company is not necessarily a good investment.The same thing applies to market sectors.

In the end, this discussion is simply about two market sectors and how they compare. No one can predict this. I happily own all sectors, then I don't have to worry about guessing which ones will be winners or losers.