Unsubscribe

Confirm you would like to unsubscribe from this list

Remove strategy

Confirm you would like to remove this strategy from your list

Welcome to Thornburg

Please select your location and role to help personalize the site.
Please review our Terms & Conditions

For Institutional / Wholesale / Professional Clients

The content on this website is intended for institutional and professional investors in the United States only and is not suitable for individual investors or non-U.S. entities. Institutional and professional investors include pension funds, investment companies registered under the Investment Company Act of 1940, financial intermediaries, consultants, endowments and foundations, and investment advisors registered under the Investment Advisors Act of 1940.

TERMS AND CONDITIONS OF USE

Please read the information below. By accessing this web site of Thornburg Investment Management, Inc. ("Thornburg" or "we"), you acknowledge that you understand and accept the following terms and conditions of use.

Disclaimers

Products or services mentioned on this site are subject to legal and regulatory requirements in applicable jurisdictions and may not be licensed or available in all jurisdictions and there may be restrictions or limitations to whom this information may be made available. Unless otherwise indicated, no regulator or government authority has reviewed the information or the merits of the products and services referenced herein. Past performance is not a reliable indicator of future performance. Investments carry risks, including possible loss of principal.

Reference to a fund or security anywhere on this website is not a recommendation to buy, sell or hold that or any other security. The information is not a complete analysis of every material fact concerning any market, industry, or investment, nor is it intended to predict the performance of any investment or market.

All opinions and estimates included on this website constitute judgements of Thornburg as at the date of this website and are subject to change without notice.

All information and contents of this website are furnished "as is." Data has been obtained from sources considered reliable, but Thornburg makes no representation as to the completeness or accuracy of such information and has no obligation to provide updates or changes. Thornburg disclaims, to the fullest extent of the law, any implied or express warranty of any kind, including without limitation the implied warranties of merchantability, fitness for a particular purpose and non-infringement.

If you live in a state that does not allow disclaimers of implied warranties, our disclaimer may not apply to you.

Although Thornburg intends the information contained in this website to be accurate and reliable, errors sometimes occur. Thornburg does not warrant that the information to be free of errors, that the functions contained in the site will be uninterrupted, that defects will be corrected or that the site and servers are free from viruses or other harmful components. You agree that you are responsible for the means you use to access this website and understand that your hardware, software, the Internet, your Internet service provider, and other third parties involved in connecting you to our website may not perform as intended or desired. We also disclaim responsibility for damages third parties may cause to you through the use of this website, whether intentional or unintentional. For example, you understand that hackers could breach our security procedures, and that we will not be responsible for any related damages.

Thornburg Investment Management, Inc. is regulated by the U.S. Securities and Exchange under U.S. laws which may differ materially from laws in other jurisdictions.

Online Privacy and Cookie Policy

Please review our Online Privacy and Cookie Policy, which is hereby incorporated by reference as part of these terms and conditions.

Third Party Content

Certain website's content has been obtained from sources that Thornburg believes to be reliable as of the date presented but Thornburg cannot guarantee the accuracy, timeliness, completeness, or suitability for use of such content. The content does not take into account individual investor's circumstances, objectives or needs. The content is not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment management services, nor does it constitute investment advice and should not be used as the basis for any investment decision.

Suitability

No determination has been made regarding the suitability of any securities, financial instruments or strategies for any investor. The website's content is provided on the basis and subject to the explanations, caveats and warnings set out in this notice and elsewhere herein. The website's content does not purport to provide any legal, tax or accounting advice. Any discussion of risk management is intended to describe Thornburg's efforts to monitor and manage risk but does not imply low risk.

Limited License and Restrictions on Use

Except as otherwise stated in these terms of use or as expressly authorized by Thornburg in writing, you may not:

  • Modify, copy, distribute, transmit, post, display, perform, reproduce, publish, broadcast, license, create derivative works from, transfer, sell, or exploit any reports, data, information, content, software, RSS and podcast feeds, products, services, or other materials (collectively, "Materials") on, generated by or obtained from this website, whether through links or otherwise;
  • Redeliver any page, text, image or Materials on this website using "framing" or other technology;
  • Engage in any conduct that could damage, disable, or overburden (i) this website, (ii) any Materials or services provided through this website, or (iii) any systems, networks, servers, or accounts related to this website, including without limitation, using devices or software that provide repeated automated access to this website, other than those made generally available by Thornburg;
  • Probe, scan, or test the vulnerability of any Materials, services, systems, networks, servers, or accounts related to this website or attempt to gain unauthorized access to Materials, services, systems, networks, servers, or accounts connected or associated with this website through hacking, password or data mining, or any other means of circumventing any access-limiting, user authentication or security device of any Materials, services, systems, networks, servers, or accounts related to this website; or
  • Modify, copy, obscure, remove or display the Thornburg name, logo, trademarks, notices or images without Thornburg's express written permission. To obtain such permission, you may e-mail us at info@thornburg.com.

Severability, Governing Law

Failure by Thornburg to enforce any provision(s) of these terms and conditions shall not be construed as a waiver of any provision or right. This website is controlled and operated by Thornburg from its offices in Santa Fe, New Mexico. The laws of the State of New Mexico govern these terms and conditions. If you take legal action relating to these terms and conditions, you agree to file such action only in state or federal court in New Mexico and you consent and submit to the personal jurisdiction of those courts for the purposes of litigating any such action.

Termination

You acknowledge and agree that Thornburg may restrict, suspend or terminate these terms and conditions or your access to, and use, of the all or any part this website, including any links to third-party sites, at any time, with or without cause, including but not limited to any breach of these terms and conditions, in Thornburg's absolute discretion and without prior notice or liability.

Decline

Give Us a Call

Fund Operations
800.847.0200

FIND ANOTHER CONTACT
Capital Appreciation

Why You Should Favor Emerging Market Stocks in Asset Allocation

Thornburg Investment Management
15 Mar 2021
5 min read

Emerging market equities may be positioned to provide long-term returns and diversification. Understand why in order to create better portfolios for clients.

Emerging Market Stocks Deserve a Consistent Presence in Portfolio Construction

Two questions about investing in emerging markets (EM) are increasingly common: Does it make sense to time allocations to emerging market equities? And given the MSCI’s EM Index’s historic, near-doubling from its March 2020 low, is it time to get out?
Trying to time shifts is difficult in any market, but even more so in emerging markets. Market timing questions aside, there are several compelling reasons to maintain a consistent and material allocation to emerging market stocks, if not increase it.

Emerging Market Economies Were More Agile Navigating COVID and Are Poised to Bounce Back Faster

Developing economies represent about 85% of the global population and generate nearly half of global gross domestic product (GDP), thanks in large part to a rapidly expanding middle class. Not only are these economies contributing a significant portion of the world’s economic output, but their collective GDP has also proven more resilient through the pandemic and is expected to rebound more this year and next. According to the International Monetary Fund’s World Economic Outlook from January, advanced economies are estimated to have declined 4.9% in 2020 and are forecast to expand 4.3% this year and 3.1% in 2022. By contrast, emerging and developing economies collectively declined just 2.4% in 2020 and are seen growing 6.3% in 2021 and 5% next year.

Emerging Market Economies Were More Agile Navigating COVID and Are Poised to Bounce Back Faster

Real GDP Growth (YoY)

Source: IMF

Rise of the Middle Class

Source: Bloomberg and Wolfensohn Center for Development at Brookings Institute

The faster economic growth should be supportive for emerging market earnings, if past experience is any guide. Despite the rapidly increasing importance of emerging markets in a global context, the companies in emerging markets represent less than one quarter of global stock market capitalization. This will very likely grow over time.

While the long-term investment opportunity in EM is compelling, there are portfolio benefits as well. Since its inception in 1988 through December 31, 2020, the MSCI EM Index has delivered a 10.2% annualized total return, which is similar to the S&P 500 Index’s 11% annualized gain and considerably more attractive than the MSCI EAFE Index’s 5.4% rise. Importantly, emerging markets tend to behave differently than their developed-market counterparts as they both under- and outperform each other at different points in time, providing meaningful asset diversification over market cycles.

Indeed, because EM economies and capital markets are less mature, emerging markets still experience pronounced business cycles. This attribute alone could provide a material performance advantage over time, particularly for portfolios that are actively balanced across the growth/value spectrum throughout the cycle. This balance can enhance diversification while positioning the portfolio to take advantage of sector and style rotations.

Although the S&P 500 Index extended its outperformance in the latter half of the last decade, the MSCI EM Index’s 18.7% return in 2020 slightly beat the S&P 500 Index’s 18.4% gain. And over the first two months of 2021, the developing country benchmark more than doubled the return of the S&P 500, perhaps signaling a turn in the cycle. If so, that would reinforce the long-term performance of emerging market equities as well as the portfolio diversification benefit of consistent exposure to emerging markets.

Emerging Market Exposure Enhances Diversification

Annualized Returns for Different Periods

Source: Bloomberg, Thornburg

Putting the Last Few Years into Context

Emerging market equities frequently oscillate between strongly positive and sharply negative performance. Putting the moves of the last several years into context illustrates this dynamic nature of EM investing and supports our view that it’s always the right time to be invested in EM.
Following the 2008 Global Financial Crisis, emerging markets rebounded sharply on the back of strong domestic consumption trends and bold stimulus programs, particularly in China. Expectations and valuations grew quickly,but were subsequently disappointed as the debt-fueled stimulus programs began to wear off. Most emerging markets were left with a debt overhang. By 2015, the U.S. Federal Reserve had tapered its asset purchases and then steadily lifted its key rate from late 2016 through mid-2019, spurring a strengthening U.S. dollar. The dollar headwind was too much for most emerging market earnings translated into greenbacks, despite consistent underlying EM growth trends. And while relative valuations favored developing country stocks in recent years, the U.S.–China trade dispute and questions about the future growth rate of China also weighed on broader developing country equities.

Entering 2020, economic conditions looked strong for many emerging markets but the spread of COVID-19 and to a lesser extent an oil price war between Russia and Saudi Arabia ultimately resulted in the first quarter being the worst quarter for global equities since the Great Financial Crisis. A flight to safety ensued as a general sense of fear overcame the markets, resulting in elevated capital flows out of EM and into the perceived safety of the U.S. dollar. The impact was especially painful for EM economies with elevated macro sensitivity to oil as well as those seen as too dependent on foreign investment.
Ultimately, though, with vaccine developments stoking the reopen trade and the U.S. election easing geopolitical tensions, emerging market equities finished an unprecedented 2020 on a high note. The MSCI EM Index returned just under 20% during the fourth quarter, its highest quarterly return in more than a decade.
The years following the Great Financial Crisis have shown once again that emerging markets are volatile. However, investors who maintained consistent exposure to EM during this period would have realized an attractive return on their EM allocation, with annualized performance of 10% for the MSCI EM Index from December 31, 2008, through December 31, 2020. Note that during this period the MSCI EM Index outperformed the S&P 500 50% of the time on a quarter-by-quarter basis, illustrating again that EM markets behave differently than their developed-country counterparts and reinforcing the argument that maintaining a consistent allocation to EM can enhance asset allocation diversification.

What Lies Ahead for Emerging Market Equities?

Many of the structural drivers that were beginning to emerge prior to COVID will come back into focus, helping to position emerging markets to potentially outperform in 2021. Among them, capital markets that continue to broaden and deepen, improving consumption trends fueled by rising incomes and an expanding middle class and new types of products and services that are continuing to penetrate many EM economies. Combined with massive global liquidity injections, highly accommodative interest rates, a weakening U.S. dollar, accelerating global growth and the deployment of COVID vaccines, emerging market stocks should have the wind at their back in 2021. Indeed, a recent global fund managers’ survey from Merrill Lynch showed that a record 62% of global money managers were overweight EM and two-thirds predicted that EM will be the top-performing asset this year. Yes, emerging markets are volatile. But it’s our strong view that because of the compelling long-term returns and portfolio diversification benefits, emerging market equities should remain a consistent and material portfolio allocation.

Discover more about:

Stay Connected

Subscribe now to stay up-to-date with Thornburg’s news and insights.
Subscribe

More Insights

‘Pick-your-poison’: Wall Street sell-off resumes

Thornburg Portfolio Manager Sean Sun tells Reuters that increasing geopolitical issues leave investors few places to hang their hats.
Advising Clients

The Death of the 60/40 Portfolio? Think Again.

Are print and internet investment articles giving you anxiety? In this podcast, Jan shares ideas to lower your blood pressure. Plus, another “Ask Jan” segment.
Global Equity

Navigating the Post-COVID Resurgence in Travel and Hospitality

As the storm that crushed the travel and lodging industries clears, we see post-Covid investment opportunities and pitfalls in the skies ahead.

Our insights. Your inbox.

Sign up to receive timely market commentary and perspectives from our financial experts delivered to your inbox weekly.
This field is for validation purposes and should be left unchanged.
Feedback