Emerging Markets Stocks Lead Returns For Major Asset Classes

Shares in emerging markets moved to first place for one-week and one-year returns for the major asset classes, based on a set of exchange-traded funds through Friday’s close (Feb. 5). In addition to topping returns last week, emerging markets equities have widened a first-place performance lead over US stocks, which are in second place for one-year results.

Vanguard FTSE Emerging Markets (VWO) rallied sharply last week, rising 5.5%. The surge marks the biggest weekly gain for the fund since November (see chart of weekly prices below).

Barron’s notes that investment flows in these stocks has been strong recently. “A net $5.7 billion flowed into emerging market stocks this week, according to Bank of America strategists. That marks the 19th week of ‘large inflows’ in the past 20, according to Michael Hartnett, chief investment strategist at BofA. Meanwhile, U.S. stocks saw their largest net outflow—$7.3 billion—in the past six weeks.”

US stocks have, for the moment, taken a back seat to emerging markets, but second-place performance still looks pretty good. US shares rose 5.2%, based on Vanguard Total US Stock Market (VTI), just slightly behind VWO’s performance.

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Last week’s biggest loser among the major asset classes: foreign government bonds in developed markets. SPDR Bloomberg Barclays International Treasury Bond (BWX) tumbled 2.2%, in part due to a rising dollar. The US Dollar Index rose for a second week, creating headwinds for assets denominated in foreign currencies after measuring results in terms of greenbacks.

The Global Markets Index (GMI.F) rebounded last week after a sharp decline previously. This unmanaged benchmark, which holds all the major asset classes (except cash) in market-value weights via ETF proxies, surged 3.3% — the benchmark’s biggest weekly gain in three months.

Stocks in emerging markets are also the top one-year performer for the major asset classes. VWO closed up 27.9% as of Friday’s close for the trailing 12-month window. US stocks (VTI) have the second-best one-year gain: 22.7%.

US and foreign property shares continue to post the only losses for the trailing one-year period. Vanguard US Real Estate (VNQ) and its offshore counterpart (VNQI) are down 3.7% and 6.3%, respectively, vs. their year-ago levels after factoring in distributions.

GMI.F is currently posting a strong 15.7% gain for the past year.

Note that US stocks (VTI) and emerging markets stocks (VWO) are currently posting zero drawdowns.

GMI.F’s current drawdown is also zero, as of last week’s close.

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