A group of stocks known as the MSCI Emerging Markets Index is used to monitor the financial performance of significant corporations in rapidly developing countries. This index was produced by MSCI Inc., formerly known as Morgan Stanley Capital International, along with a number of others.
Shares of an exchange-traded fund (ETF) that tracks the index can be purchased by American investors who want to invest in foreign stocks. The MSCI Emerging Markets Index is a common benchmark for mutual funds and exchange-traded funds (ETFs) to use when evaluating their own performance.
The MSCI Emerging Markets Index: A Quick Guide
The performance of large-cap and medium-cap businesses across 25 countries is reflected in the MSCI Emerging Markets Index. They are all considered emerging markets. That is, their economies, or at least some segments of their economies, are perceived to be growing quickly and actively interacting with international markets.
Stocks from companies with headquarters in Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey, and the United Arab Emirates are currently included in the MSCI Emerging Markets Index.
In 1988, the index was established. Only 10 countries at the time had enterprises represented. The index is now frequently used to assess the financial health of businesses in emerging markets. Additionally, it serves as a benchmark for developing market mutual funds and ETFs to compare their own performance to.
Performance of the MSCI Emerging Markets Index
The MSC Emerging Markets Index’s one-year net return as of December 2021 was -2.54 percent, its five-year annualized return was 9.87 percent, and its ten-year annualized return was 5.49 percent. It has generated an annualized return of 8.97% since its debut on December 29, 2000.
The MSCI World Index, in contrast, returned 21.82 percent in a year, 15.03 percent over five years, and 12.70 percent over ten years. It has returned an annualized 6.72 percent since December 29, 2000.
Over the last year, five years, and ten years, the MSCI ACWI Index returned 18.54 percent, 14.40 percent, and 11.85 percent, respectively. Since December 29, 2000, it has returned 6.68 percent.
Purchasing shares of the MSCI Emerging Markets Index
A fund in and of itself is not the MSCI Emerging Markets Index. However, investors can purchase shares of mutual funds or exchange-traded funds that purchase the index’s listed stocks.
For instance, the iShares MSCI Emerging Markets Index ETF (EEM) invests at least 80% of its assets in the stocks and ADRs that make up the index.
The iShares fund is by far the biggest among the numerous other ETFs that track the MSCI Emerging Market Index.
There are additional funds that utilize the MSCI Emerging Markets Index as a benchmark instead of replicating it to assess their own performance. These include Innovator MSCI Emerging Markets Power Buffer ETF July Series (IEMPS), Avantis Emerging Markets Equity ETF (AVEM), and Innovator MSCI Emerging Markets Power Buffer ETF January Series (EJAN) (EJUL).
There are numerous additional options for developing market ETFs and mutual funds that follow different indices, such the FTSI Emerging Markets Index. These are managed mutual funds that choose their own stocks rather than following an index.
A risky investment, emerging markets are seen as such because of political and currency exchange risks. Emerging market investors may anticipate erratic returns. Both the potential benefits and losses could be rather significant.
They can be utilized to diversify a portfolio that is heavily weighted toward American assets.
Composition of the MSCI Emerging Markets Index
At the end of December 2021, the index represented 1,420 members from 25 different countries. The top 10 included:
Taiwan Semiconductor Mfg (Taiwan)
Holdings by Tencent (China)
SMART Technologies (South Korea)
Huawei Group Holding (China)
(China) Meituan B Reliance Industries (India)
Infosys (India)
BK H China Construction (China)
Inc. Mediatek (Taiwan)
WD.Com HK (China)
Chinese companies account for 32.41 percent of the index’s composition overall, followed by Taiwanese at 16.09 percent and South Korean and Indian companies at over 12 percent apiece.
Information technology, financials, and consumer discretionary dominated the sector makeup.
