What Is the MSCI Emerging Markets Index?
The MSCI Emerging Markets Index is a selection of stocks that is designed to track the financial performance of key companies in fast-growing nations. It is one of a number of indexes created by MSCI Inc., formerly Morgan Stanley Capital International.
American investors who want to buy into global stocks can buy shares of an exchange-traded fund (ETFs) that mirrors the index. There are also many ETFs and mutual funds that use the MSCI Emerging Markets Index as a benchmark for their own performance.
- The MSCI Emerging Markets Index is used to measure the financial performance of companies in fast-growing economies around the world.
- The index tracks mid-cap and large-cap stocks in 27 countries, dominated by Chinese, Taiwanese, and South Korean companies.
- Its top holdings currently include Taiwan Semiconductor, Tencent Holdings, and Alibaba Group.
- Investors can invest in the index through an ETF that mirrors it or a fund that uses it as a benchmark.
- All emerging market funds are considered risky investments, with outsized potential for gains and losses.
Understanding the MSCI Emerging Markets Index
The MSCI Emerging Markets Index reflects the performance of large-cap and medium-cap companies in 27 nations. All are defined as emerging markets. That is, their economies or some sectors of their economies are seen to be rapidly expanding and engaging aggressively with global markets.
The MSCI Emerging Markets Index currently includes the stocks of companies based in Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey, and the United Arab Emirates.
The index was created in 1988. At that time, companies in only 10 nations were represented in it. Today, the index is widely used to measure the economic performance of emerging market companies. It also is used by emerging market ETFs and mutual funds as a benchmark against which to measure their own performance.
MSCI has a number of indexes that track global stocks, including the MSCI World Index, which tracks the stocks of developed nations, and the MSCI All-Country World Index, which tracks a broad selection of stocks across both developed and emerging nations.
MSCI Emerging Markets Index Performance
As of the end of the first quarter of 2021, the MSC Emerging Markets Index recorded a five-year annualized return of 12.07%. Its 10-year annualized return was 3.65%. Its one-year return was 58.39%.
By contrast, the MSCI World Index returned 13.36% for the five-year period, and 9.88% for the 10-year period. Its one-year return was 54.03%.
The MSCI ACWI Index returned 13.21% for the five-year period, and 9.14% over 10 years. Its one-year return was 54.60%.
The MSCI Emerging Markets Index is not a fund in itself. Like the Dow Jones Industrial Average, it is a selection of stocks whose prices are tracked from day to day in order to indicate the direction of an overall market.
Investing in the MSCI Emerging Markets Index
Investors can buy shares in exchange-traded funds or mutual funds that buy stocks listed in the index. The iShares MSCI Emerging Markets Index ETF (EEM) invests about 90% of its assets in stocks and American depositary receipts included in the index.
There are several other ETFs that mirror the MSCI Emerging Market Index, but the iShares fund is by far the largest.
There also are funds that do not mirror the MSCI Emerging Markets Index but use it as a benchmark against which to measure their own performance. These include Avantis Emerging Markets Equity ETF (AVEM), Innovator MSCI Emerging Markets Power Buffer ETF January Series (EJAN), and Innovator MSCI Emerging Markets Power Buffer ETF July Series (EJUL).
There are many other choices of emerging market ETFs and emerging market mutual funds that track other indexes, such as the FTSI Emerging Markets Index. These include managed mutual funds that do not mirror an index but do their own stock-picking.
Emerging markets are considered a risky investment, due to political risks and currency exchange fluctuations. Investors who turn to emerging markets should expect volatile returns. The potential gains are substantial, and so are the potential losses.
They can be used to add some diversity to a portfolio that is heavy on U.S. assets.
MSCI Emerging Markets Index Composition
As of March 31, 2021, the index reflected the performance of 1,392 companies. The top ten were:
- Taiwan Semiconductor Mfg (Taiwan)
- Tencent Holdings (China)
- Alibaba Group Holding ADR (China)
- Samsung Electronics (South Korea)
- Meituan B (China)
- Naspers N (South Africa)
- China Construction BK H (China)
- Reliance Industries (India)
- JD.Com ADR (China)
- Ping An Insurance H (China)
As this list implies, the index is heavily weighted in China, at 37.9% of its composition, followed by Taiwan at 13.84%, and South Korea at 13.33%.
In terms of its sector makeup, information technology, financials, and consumer discretionary were dominant.
A fund that mirrors the MSCI Emerging Markets Index or uses it as a benchmark is a way into global growth investing.
If you're interested in global investing, keeping an eye on this index is informative.
With more than 1,300 stocks in 27 nations it is a broad survey of global economic performance.
All emerging markets are by definition risky investments, though this index makes relatively conservative choices.
At an annualized 10-year return of 3.65%, the index's performance isn't all that impressive. It's one-year return was great, though!
Many indexes, including the MSCI World Index, performed better with less risk.
MSCI Emerging Markets Index FAQs
Here are the answers to some commonly asked questions about the MSCI Emerging Markets Index.
What Is MSCI Emerging Markets Index?
Like the Dow Jones Industrial Average, the MSCI Emerging Markets Index is a selection of stocks. Each is considered a bellwether in its sector. Collectively, their performance from day to day suggests the overall direction of a market.
In the case of the MSCI Emerging Markets Index, the stocks are selected as representative of the performance of companies in fast-growing developing markets.
Which Countries Are In MSCI Emerging Markets Index?
The countries and the stocks in the index change from time to time. As of the end of the first quarter of 2021, they include Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey, and the United Arab Emirates.
The index is rebalanced twice a year. At that time, the weighting of any of the 1,300 or so stocks tracked by the index may increase or decrease, or it may be dropped altogether.
What Makes Up the MSCI World Markets Index?
The MSCI World Marks Index tracks the performance of large-cap and mid-cap stocks in 23 developed nations in North America, Western Europe, and the Asia-Pacific region.
Less than 12% of the index was comprised of the stocks in emerging market nations, More than half of the index is made up of U.S. companies.
Is MSCI Owned by Morgan Stanley?
The index was created by the investment research firm Morgan Stanley Capital International, now MSCI Inc., which still manages it. It is one of more than 160,000 MSCI indexes that are used to track the performance of industries, sectors, and regions.
These indexes are used by institutional investors, stock pickers, hedge fund managers, and the media as bellwethers of the performance of the slice of the economy that each tracks.
The indexes also are used as the basis for ETFs, which invest in the stocks listed in the index, proportionally to their weight in the index. Other ETFs do not mirror an index but use it as a benchmark to measure their own performance.
MSCI does not buy the stocks it indexes. It makes money from licensing the indexes to the financial companies that create the ETFs that mirror them.
MSCI (MSCI) is a publicly traded company, and Morgan Stanley remains its largest shareholder.