Countries Outperforming ETFs: A Surprising Trend

According to expert Kielkopf, the development of the MSCI World depends heavily on how the US market develops – and especially on how large US technology companies perform. “If you use it as the sole basis, you actually get a portfolio in which US technology stocks make up the most dominant share,” explains Kielkopf.

This is exactly where the problem lies for investors who believed that they would automatically invest broadly with the MSCI World. Although the index contains many companies, it remains regionally one-sided.

In the long term, emerging markets actually performed better than industrialized countries in the HQ Trust analysis. Since 1988, the MSCI Emerging Markets has achieved a return of around 10 percent per year, while the MSCI World has achieved 8.5 percent per year.

What’s remarkable is that this higher return from emerging markets came about even though US technology stocks have been particularly dominant over the past 15 years, thereby driving up the MSCI World significantly.

However, investors buy these opportunities with a significantly higher risk. This risk is reflected in the so-called volatility – i.e. the range of price fluctuations. The higher the volatility, the more the prices can swing up and down.

Historically, according to HQ Trust, volatility averaged 22 percent per year in the MSCI Emerging Markets, while in the MSCI World it was 15 percent. Although this difference has become smaller in recent years, the emerging countries’ susceptibility to fluctuations remains generally higher.

In addition, the performance of both regions is not consistent, but rather follows clear cycles. Sometimes the industrialized countries are ahead, sometimes the emerging countries. These phases often last many years or even decades. Anyone trying to find the perfect time to make the switch not only needs knowledge, but also a lot of luck.

This has a clear consequence for investors: Anyone who only invests in the MSCI World is betting on many companies – but at the same time is foregoing a large part of the global economy. Kielkopf puts it in a nutshell: “Anyone who maps their entire stock portfolio using the MSCI World alone is consciously or unconsciously foregoing around half of the global economy.”