Historical Returns for the MSCI EM Latin America Index (1988-2010)

Morgan Stanley Capital International, Inc. ("MSCI") created an index to track the performance of Latin American stocks in the late 1980s. The MSCI Emerging Markets (EM) Latin America Index was instituted with a market closing value of 100.00 as of December 31, 1987. It is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of emerging markets in Latin America. According to the MSCI website, the MSCI EM Latin America Index currently consists of a combination of the following market returns for Brazil, Chile, Colombia, Mexico, and Peru. The Index is dominated by Brazil and the Mexico, the two largest Latin American economies and stock markets.

Since its inception, the returns for the MSCI EM Latin America Index, although very volatile, have been nothing short of astounding. The MSCI EM Latin America Index closed at a value of 9519.625 on December 31, 2010, a gain of an incredible 9,419.6% since its inception 23 years earlier. The annualized gain of the Index during this time period was 21.91%.

The chart below shows the annual returns for the MSCI EM Latin America Index between 1988 and 2010 and also indicates 5-, 10-, 15-, and 20- year annualized returns. During 23 full calendar years of its existence, the Index increased in value for 16 years and decreased in value for 7 years. The largest calendar year gains were achieved in 1991 and 2009 when the Index soared 149.66% and 104.19%, respectively. The largest calendar year losses were recorded in 1998 and 2008 when the Index soared 35.11% and 51.28%, respectively.

The largest 5-year gain was recorded between 2003 and 2007 when the Index soared 688% for an annualized gain of just over 51% per year during that time period. There were only two 5-year periods during which the Index lost value - those between (a) 1994-1998 when the Index lost 1.74% per annum, and (b) 1998-2002 when the Index lost 7.85% per annum.

There are 14 different 10-year periods shown in the chart below and the Index gained value during each of those 10-year periods. The largest 10-year gain occurred between 1988-1997 when the Index gained 1,489%, or 31.87% per annum.

There are 9 different 15-year periods shown in the chart below and the Index gained value during each of those 15-year periods. The largest 15-year gain occurred between 1991-2005 when the Index gained 1,390%, or 19.74% per annum. [Note that the largest 10-year total return exceeds the largest 15-year total return!]

There are 4 different 20-year periods shown in the chart below and the Index gained value during each of those 10-year periods. The largest 20-year gain occurred between 1988-2007 when the Index gained 8,229%, or 24.75% per annum.

Unfortunately there is no ETF currently available that tracks the MSCI EM Latin America Index. The closest proxy that I have been able to locate is the iShares S&P Latin America 40 Index ETF (symbol: ILF), which tracks an index of stocks trading on the exchanges of four Latin American countries - Mexico, Brazil, Argentina, and Chile.

Although extremely volatile, Latin American stocks can provide quite a kick to investment returns during a bull market. Someone holding an ETF tracking Latin American stocks should consider periodically rebalancing the position to (a) lock in capital gains after years during which those stocks have soared, or (b) increase a position after a year during which the Index dropped in value.

*** I have updated this chart to include returns for 2013 in another post.

Historical Returns for the MSCI EAFE Index (1970-2010)

As I have previously written, the Morgan Stanley Capital International, Inc. ("MSCI") Europe, Australasia Far East ("EAFE") Index is the benchmark index for foreign equity markets and is the foreign equity equivalent of the S&P 500 Index. The MSCI EAFE Index measures the equity market performance of developed markets in Europe, Australasia, and the Far East, excluding the U.S. and Canada.

The Index includes a selection of stocks from 21 developed markets, the largest of which are Japan and the United Kingdom. The MSCI EAFE Index has been calculated since December 31, 1969 and is the oldest large cap international stock index.

The charts below (click on the charts for a larger view) illustrate annual and annualized returns in terms of U.S. Dollars for the MSCI EAFE Index between 1970 and 2010. The Index has returned a total of 3,948% over the past 41 years, or an annualized average of about 9.45% per year.

The annualized return of the MSCI EAFE Index between 1970 and 2009 of 9.45% slightly trails the return of 9.99% of the S&P 500 Index during the same time period.

Many investment advisers recommend investing 20-30% of one's equity portfolio in large cap foreign stocks, such as those comprising the MSCI EAFE Index. Vanguard, for example, offers the Developed Markets Index fund and a corresponding ETF (symbol: VEA) that tracks the MSCI EAFE Index.