Introduction to the MSCI Emerging Markets Index
The MSCI Emerging Markets Index is a curated selection of stocks representing key companies in rapidly growing nations. This index, developed by MSCI Inc., serves as a vital tool for U.S. investors who wish to access global markets through various financial instruments such as exchange-traded funds (ETFs) and mutual funds.
Key Points
- The MSCI Emerging Markets Index monitors financial performance in fast-growing economies worldwide.
- It includes mid-cap and large-cap stocks from 25 countries.
- Its top holdings are focused in the Asia-Pacific and India, particularly in the infotech, financial, and consumer discretionary sectors.
- Investors can gain exposure through ETFs that track the index or funds using the index as a benchmark.
- Emerging market investments come with high risk and high reward, making them suited for long-term investment horizons.
Understanding the MSCI Emerging Markets Index
The MSCI Emerging Markets Index captures the performance of large-cap and mid-cap companies in nations classified as emerging markets, economies that are rapidly expanding and integrating into the global financial ecosystem.
Included Countries
As of the latest review, the index encompasses firms from Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey, and the United Arab Emirates.
Initially launched in 1988 with participants from only 10 countries, the index now sets a global standard for tracking the economic trajectory of emerging market companies. Fund managers often use this index as a benchmark of performance.
Besides the MSCI Emerging Markets Index, MSCI Inc. offers broad indexes like the MSCI World Index, covering stocks from developed countries, and the MSCI All-Country World Index, which includes both developed and emerging nations.
MSCI Emerging Markets Index Performance
As of December 2021, the index had the following performance metrics:
- One-year net return: -2.54%
- Five-year annualized return: 9.87%
- Ten-year annualized return: 5.49%
- Since inception on December 29, 2000: 8.97% annualized return
For comparison, the MSCI World Index and the MSCI ACWI Index typically show stronger performance, reflecting the return on investments in developed markets.
Investing in the MSCI Emerging Markets Index
Investing directly in the MSCI Emerging Markets Index is not possible; instead, investors can choose from ETFs or mutual funds that replicate the index’s composition.
Popular Investment Options
For instance, the iShares MSCI Emerging Markets Index ETF (EEM) invests around 80% of its holdings in index-covered stocks and American Depositary Receipts (ADRs). Other notable ETFs not directly mirroring the index but using it as a performance benchmark include the Avantis Emerging Markets Equity ETF (AVEM) and Innovator MSCI Emerging Markets Power Buffer ETFs (EJAN and EJUL).
There are also various other emerging market ETFs and mutual funds that use different indexes, such as the FTSI Emerging Markets Index, and others involve active stock selection strategies.
Risk and Reward
Due to their inclusion of rapidly evolving markets, investments in these funds are inherently high-risk and exhibit considerable volatility. These investments can diversify portfolios significantly but come with the potential for vast gains and similarly considerable losses.
MSCI Emerging Markets Index Composition
As of December 2021, the MSCI Emerging Markets Index comprised 1,420 components across 25 countries. The top 10 positions include:
- Taiwan Semiconductor Mfg (Taiwan)
- Tencent Holdings (China)
- Samsung Electronics (South Korea)
- Alibaba Group Holding (China)
- Meituan B (China)
- Reliance Industries (India)
- Infosys (India)
- China Construction Bank H (China)
- Mediatek Inc (Taiwan)
- JD.Com HK (China)
The index is notably weighted towards Chinese firms (32.41%), followed by Taiwanese (16.09%) and firms from South Korea and India (both over 12%). Sector-wise, information technology, financials, and consumer discretionary dominate.
Pros and Cons
Pros
- Easy-to-track benchmark for global growth investing
- Reflects the performance in diverse, developing economies
- Focuses on relatively stable large and mid-cap firms
Cons
- Less diverse than other global indexes
- Suited for long-term horizons with short and mid-term returns often lacking
- High-risk due to the nature of emerging markets
MSCI Emerging Markets Index FAQs
What Is MSCI Emerging Markets Index?
Similar to the Dow Jones Industrial Average, the MSCI Emerging Markets Index is a collection of stocks each acting as a sector benchmark. This ensemble of stocks indicates the overall directional trends in emerging market economies.
Which Countries Are in the MSCI Emerging Markets Index?
The list of participating countries can vary, but as of the latest update, they include a diverse array of nations across several continents. The index is rebalanced semi-annually to reflect shifts in the market performance and overall economic conditions.
What Makes Up the MSCI World Markets Index?
The MSCI World Markets Index tracks large-cap and mid-cap stocks from 23 developed nations, prominently featuring North American, Western European, and Asia-Pacific companies. U.S. companies account for a substantial percentage of these assets.
Is MSCI Still Owned by Morgan Stanley?
No, MSCI Inc. has been an independent public company since 2009. MSCI indices, widely adopted by institutional investors, stock pickers, and hedge fund managers, serve as markers of sectoral and regional performance. MSCI profits from licensing these indices rather than investing in the indexed stocks.
Related Terms: large-cap, mid-cap, exchange-traded funds, mutual funds, global investing, stock market
References
- MSCI. “MSCI Emerging Markets Index (USD)”.
- MSCI. “Emerging Markets”.
- iShares by Blackrock. “iShares MSCI Emerging Markets Index ETF (EEM) 2021 Prospectus,” Page S-3.
- ETF Database. “MSCI Emerging Market Index - ETF Tracker”.
- ETF Database. “MSCI Emerging Markets Index - ETF Tracker”.
- MSCI. “MSCI World Index”.
- MSCI. “Indexes”. Jan. 25, 2022.
