What is the 'MSCI Emerging Markets Index'
The MSCI Emerging Markets Index is an index created by Morgan Stanley Capital International (MSCI) designed to measure equity market performance in global emerging markets. It is a float-adjusted market capitalization index that consists of indices in 23 emerging economies: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and the United Arab Emirates.
BREAKING DOWN 'MSCI Emerging Markets Index'
Emerging markets are considered relatively risky because they carry additional political, economic and currency risks. They certainly are not for those who value safety and security above all else. An investor in emerging markets should be willing to accept volatile returns; there is a chance for large profit at the risk of large losses. An upside to emerging markets is their performance is generally less correlated with developed markets. As such, they can play a role in diversifying a portfolio, and thus reduce overall risk.
Mutual Fund Benchmark
Initiated in 1988, the MSCI Emerging Markets Index (MSCI EMI) represented 10 nations with a total world market capitalization of less than 1%. In 2016, the index has since grown to incorporate 23 countries that comprise about 10% of global market cap. Hence, the MSCI EMI is appropriately used as a benchmark for performance by many emerging market growth mutual funds.
Diversified emerging market portfolios such as the JPMorgan Emerging Markets Equity Fund, a managed pool overweight the MSCI EMI as of March 31, 2016, by 6.5% in the consumer discretionary sector and 5.5% in the investment company sector, use the index as a measuring stick for performance. Fund returns at net asset value (NAV) have closely tracked the index despite the marked difference in holdings. The portfolio returned 2.88% annually on average through March 2016, a figure that sits below the corresponding return of the index by 14 basis points (bps).
MSCI EMI Exchange-Traded Funds
There is a method to invest directly in the index itself. The iShares MSCI Emerging Markets exchange-traded fund (ETF) owns a basket of securities representing at least 90% of the weightings held by the index. Among its top 10 holdings as of May 30, 2016, are South Korean electronics giant Samsung Electronics Company Ltd. and Chinese technology conglomerate Tencent Holdings Limited. Nuveen Asset Management equity strategist Bob Doll sees intermediate-term opportunity in the ETF as droves of developing market citizens ascend from lower classes to the consumption class over the next several years.