If I had a penny for every time I've heard somebody claim Western economies are finished and the real future growth opportunities lie in emerging markets I'd have £2.37 by now.
It's a modern truism that Asia and emerging markets will outperform as global financial power shifts from West to East, but is it actually true? And by true, I mean, do recent past performance figures suggest this has actually been happening. Most people assume emerging markets have delivered higher returns than the West, but what do the figures actually say?
Let's start by looking at various global indices, comparing the developed and emerging worlds, using figures from Standard & Poor's showing discrete annualised returns over five and 10 years, with dividends reinvested. These figures show total returns quoted in US dollars, so you have to discount currency fluctuations.
|Region||5 years||10 years|
|S&P Asia Pacific Emerging||14.6%||8.2%|
|S&P European Emerging||5.7%||16.1%|
|S&P Latin America||21.5%||18.4%|
|S&P Mid-East and Africa||11.8%||11.6%|
Well that's pretty straightforward. The emerging markets have it, trouncing markets in the developed regions of Europe, the US and Asia-Pacific.
But what about individual countries?
|Country||5 years||10 years|
Oops, they did it again
As you can see, the BRICs deserve all the bouquets that have been thrown in their direction. The UK, US, Japan and even export powerhouse Germany simply can't keep up.
I haven't included countries such as Indonesia, Korea, Malaysia, Philippines, Thailand, Chile, Colombia and Peru in the table, but they have all been far, far better places to invest your money over the past decade than the developed world.
So the next time somebody says stock markets have delivered negative returns over the past decade, you can say yes, that may be true in the West and Japan, but it isn't elsewhere in the world. Investing in equities still makes you money, provided you set foot overseas. It's been better to travel.
Can a star beat the trend?
Finally, let's see how the best unit trust fund manager in each sector performed. Can a star manager really make the difference? Using figures from Morningstar, I have searched for the best-performing fund over five years, and shown its annualised percentage growth (before charges) over both five and 10 years. I have only included funds with a 10-year track record (except in Russia, where none are available).
|Fund||5 years||10 years|
|SVM UK Growth||8.7%||3.6%|
|BlackRock Continental European||9.8%||2.9%|
|Gartmore US Growth||5.6%||-2.2%|
|Gartmore China Opportunities||22.6%||12.9%|
|Scottish Widows Latin American||23.9%||15.6%|
|Neptune Russia & Greater Russia||18.9%||N/a|
|Aberdeen Emerging Markets||21.4%||14.9%|
As you can see, even the very best fund manager in the West has failed to defy global market trends and therefore trails the developing world. This suggests that in the long run, what matters most is the market you are in, rather than who is running your money. Just like a big-name Hollywood star can't save a turkey, nor can a star fund manager buck an ailing sector.
East is best
I was hoping to prove something surprising here, but I haven't. Emerging markets have thoroughly hammered the West over the past decade, and even if the odd lone manager has staged a courageous stand, they have been overrun in the end.
But we all know that past performance is no guide to the future. Given the cyclical and downright ornery nature of stock markets you might see this as a sign that the West will soon have its turn.
Personally, I doubt it, but you can start that debate below. Just remember, every time somebody says emerging markets are the future, I get a penny. And I know where I'm investing it.
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