Why indexing works for emerging markets

EMs

Jeff Molitor, Vanguard's Europe chief investment officer, challenges the conventional wisdom that investors seeking outperformance in emerging markets are better off with actively managed portfolios.

Investors’ frenzied rush to emerging markets funds and exchange-traded funds (ETFs) over the past several years abated in 2011, as the performance of those markets reversed course and fund cashflow declined in lockstep. Yet emerging markets investing remains firmly in the limelight, as many investors continue to believe the regions’ higher expected GDP growth relative to that of developed markets must in turn lead to higher relative stock market returns. Vanguard research has shown, however, that there is effectively zero correlation between long-run GDP growth and long-run stock retu...