Reemerging Markets

Jonathan Clements

IF YOU WANT intellectual investment stimulation, you’d be hard pressed to do better than, the site for Rob Arnott’s money management firm. Rob is one of the smartest guys I’ve met during my three decades bouncing around the financial world. Over the years, he’s offered intriguing insights on topics such as tax management, share dilution and indexing.

Are you confident U.S. stocks will continue to shine? Check out Research Affiliates’ 10-year expected returns. The firm expects small U.S. stocks to lag behind inflation and larger-cap U.S. stocks to eke out the slimmest of gains, while emerging markets and developed foreign markets roar ahead.

Intrigued? Read the firm’s recent article on emerging markets. They’re arguably the world’s most attractive asset class, with modest valuations, depressed currencies and favorable demographics, plus upward price momentum from 2016 that could signal the beginning of a long-awaited rebound. Then ask yourself whether you have enough exposure in your own portfolio. Emerging markets account for 9% of global stock market valuation, based on the FTSE Global All Cap Index, and 19% of non-U.S. market capitalization, as measured by the FTSE All-World ex-U.S. Index. I’m a believer: In recent weeks, I’ve been adding to my emerging markets index fund.

Also check out the site’s demographic data. The chart at the bottom of the screen, which shows the shrinking number of workers per retiree, starkly illustrates why growth is so sluggish in the developed world and why we need the typical retirement age to rise. But it also explains why emerging markets remain a compelling investment—though even they will face potential demographic headwinds later this century.

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