You’ve heard the old adage “sell in May and go away.” That wasn’t very good advice this year, especially if you were allocated to emerging markets. In fact, there’s been a battle raging in this market: emerging markets versus domestic markets.
So far in 2014, emerging markets, as represented by the iShares MSCI Emerging Market Index (EEM) are up about 6.2% (as of June 2) while the domestic markets, as represented by the SPDR S&P 500 Index (SPY), are up 5.5%. That’s not a very big difference, but when you look at the action in the last three months the fight moves decidedly in favor of emerging markets.
In the three months that ended June 2, EEM was up more than 10% while SPY managed a gain of just slightly more than 4%. That’s an outperformance of nearly 150% in just about 12 weeks. The relative outperformance in emerging markets is one of our main investment themes, and it’s one that argues that there is more upside potential in emerging markets than there is here at home.
As you can see by the table below, the top-performing exchange-traded funds (ETFs) during May (excluding leveraged funds) were in the emerging markets.
Ticker Name Return Assets (millions)
SCIN India Small Cap ETF 23.53% 20.40
SCIF India Small-Cap Index ETF 23.12% 110.35
INXX India Infrastructure ETF 22.72% 16.50
SMIN MSCI India Small Cap Index Fund 18.83% 5.37
RSXJ Market Vectors Russia Small-Cap ETF 15.08% 16.19
ERUS iShares MSCI Russia Capped ETF 13.53% 388.08
RBL SPDR S&P Russia ETF 12.88% 33.36
RSX Market Vectors Russia ETF 12.61% 1,187.90
EPI India Earnings Fund 11.87% 1,022.03
INCO India Consumer ETF 11.13% 4.47
The rise of markets such as India, and the formerly beaten-down Russia, shows the power of emerging markets—power that savvy investors need to consider putting on their side as we quickly approach the latter half of 2014.