The huge outperformance of American indices since the global financial crisis means the US has become an even larger component of the global stock market. Consequently, your global investment portfolio may be less diversified than you think.
One solution, suggests AQR Capital Management in a recent report, is to overweight emerging markets. The correlation between emerging and developed markets has fallen over the past 25 years, meaning emerging markets now offer greater diversification benefits.
Diversification aside, emerging markets are cheap. AQR estimates emerging markets should outperform developed markets by three percentage points annually in coming years – a “generationally wide” premium and one of the highest levels in the past 25 years.
Fidelity Emerging Markets Limited (LON:FEML) is an investment trust that aims to achieve long-term capital growth from an actively managed portfolio made up primarily of securities and financial instruments providing exposure to emerging markets companies, both listed and unlisted.
