Are Emerging Markets Worth Investing?

Emerging market equities have been some of the worst performers in recent years. From political chaos to corruption and everything in between many of these markets have let down investors. Hence many investors have avoided emerging markets like the plague. According to an article at iShares, over the past 5 years as of September, 2022 emerging markets have earned just 1.1% while US stocks soared during the same time period. No wonder global investors have thrown in the towel on these markets. In an ideal scenario, emerging markets should produce a higher rate of return than the less risky developed equities. However this has not been the case.

Despite the awful returns in the past few years, emerging market stocks are worth holding when considered over the long run. The following chart shows the performance of S&P 500 and emerging markets over two decades:

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Source: How to invest in emerging markets in volatile times, iShares

We may never know how emerging equities will perform this year or the next. To avoid missing out on an spectacular gains it is wise to allocate a small portion of one’s assets to these markets. That way if they underperform again one doesn’t lose much but can reap the benefits if they go the other way.

Related ETFs:

  • iShares MSCI Emerging Markets ETF (EEM)
  • Vanguard MSCI Emerging Markets ETF (VWO)

Disclosure: No positions

Why Diversification is the Key – 20 Years of Asset Class Returns: Chart

Diversification among asset classes is one of the simplest and easiest ways to reduce risk and increase stability to a portfolio. As no one asset class can top the returns every year it is important to diversify. The following chart shows the returns of various asset classes from 2002 to 2021. Large-cap US growth stocks were the winners with an annualized return of around 11%.

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Source: MFS

Related ETFs:

  1. SPDR S&P 500 ETF (SPY)
  2. Vanguard S&P 500 ETF (VOO)
  3. iShares TIPS Bond ETF (TIP)
  4. iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
  5. iShares Core Total U.S. Bond Market ETF (HYG)
  6. SPDR® Barclays High Yield Bond ETF (JNK)

Disclosure: No positions

Minerals Used in Electric Cars vs. Conventional Cars

Copper is one of the most important mineral in the world and Copper prices are traditionally considered as the barometer of the global economy. As the world transitions to everything green, the demand for copper would only increase. One estimate puts the global copper consumption will double by 2035 in order for the world to meet zero-emission energy goals. However the transition to clean energy would bring new headaches for the global economy especially in terms of the need for critical minerals. For instance, growing consumer demand for EVs leads to higher demand for minerals. According to the IEA, a typical electric car requires six times the mineral inputs of a conventional internal combustion engine car.

The following chart shows the minerals used in EVs compared to conventional cars:

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Source: The Role of Critical Minerals in Clean Energy Transitions, IEA