With developed and emerging market equities looking strong, should we focus on both or only one group?
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In our latest podcast, we explore various topics including the growing strength of international equities, reflected on the Asset Class Group Scores page. These equities are commonly split up between two major groups: Developed Markets and Emerging Markets. Developed Markets include countries such as the United States, Canada, the United Kingdom, and Japan—economies characterized by high income levels, advanced financial systems, and stable regulatory environments. In contrast, Emerging Markets encompass countries like China, India, and Brazil, which generally feature lower to middle-income economies, developing financial markets, and higher growth potential.
Historically, both groups have faced challenges, with average group scores lingering below 4.0 for several years. That trend shifted in June 2025, when both groups moved above an average score of 4.0 on the ACGS page and have remained there since then, signaling sustained strength in international equities. With both groups in actionable territory, the question becomes: where should in investors focus when adding international exposure?
The chart below highlights every instance, excluding one-month clusters, where the group’s average score crossed 4.0. Using the iShares Core MSCI Emerging Markets ETF (IEMG) and Vanguard FTSE Developed Markets ex-US ETF (VEA) as proxies, we analyzed the forward returns at multiple intervals to provide some historical context.
Emerging Markets (IEMG): The 6-month average return following these signals was an impressive 8.03%, though the 1-year return cooled to 6.83%.
Developed Markets (VEA): Forward returns were muted or slightly negative, presenting a stark contrast to IEMG’s performance.
While results are skewed by the 2008 financial crisis, it’s worth noting that international equities tend to be volatile. Still, given this year’s strong performance, one must ask: Is this time different?
The chart above shows the rolling 6-month returns for IEMG and VEA since the early 2000s. Both categories recently approached a 40% rolling six-month return, a level reached only a handful of times historically. The trend clearly favors Emerging Markets over Developed Markets ex-US. In addition, the IEMG fund currently has a fund score of 5.58, versus VEA’s fund score of 4.47.
Bottom line, historical results and current market conditions point to Emerging Markets as a compelling option for investors seeking international diversification. While volatility and macro risks remain present in international markets, positioning yourself tactically can provide upside potential as well as diversification benefits
