Friday, April 29, 2011

Historical Returns for the MSCI Emerging Markets Index (1988-2010)

The Morgan Stanley Capital International (MSCI) Emerging Markets (EM) Index is the most widely reported and followed broad-based emerging markets equity index. I have previously discussed annual returns of the index during the 1989-2008 and 1989-2009 time periods. I have updated the information in the current post and in the chart shown below (click on the image for a larger view) to include results for the years 1988 and 2010.

The chart below lists annual returns for the MSCI EM Index in terms of U.S. Dollars between 1988 and 2010. Returns for the MSCI EM Index from 1988-2010 represent gross dividend reinvested returns.*

As shown in the chart below, the MSCI EM Index is extremely volatile. During the 23 years for which I have data (i.e., 1988-2010), the MSCI EM Index lost value during 9 calendar years and gained value in 14 other calendar years. The worst returns came during 2008 when the Index plummeted 53.33% during the financial crisis and the best annual gains came during 2009 when the Index soared 78.51%. The best extended stretch of strong returns occurred between 2003 and 2007 during which the annualized gain of the index was a whopping 37.02%.

The annualized returns were 12.78% for the 5-year period, 15.89% for the 10-year period, and 8.76% for the 15-year period ending in 2010. Annualized returns between 1988 and 2010 were 13.90% and the Index had a total new return of 1,897% between 1988 and 2010. The performance of the MSCI EM Index between 1988 and 2010 greatly exceeds the 9.78% annualized return and 755.6% total return of the S&P 500 Index during the same time period.

Emerging Markets should be critical portion of an investment portfolio of any stock market investor with a long-term investment strategy. The economies of Emerging Markets typically grow much faster than those of Developed Markets, such as the United States and the performance of equity markets of such countries often has a strong correlation with the overall economic growth of such countries. Also, as I have discussed previously, the U.S. Dollar will likely continue to weaken in the future as the country becomes more and more dependent upon foreign investment.

Many investment advisers recommend limiting Emerging Markets to no more than 10-15% of an aggressive investor's portfolio because of the inherent volatility of equities in Emerging Markets.

* The performance data shown is slightly different than the performance data I saw for the MSCI EM Index at Index Universe, and I am not sure of the reason for the discrepancy.

 ** I have updated this chart to include returns for 2012 in another post.

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