Given that the trends in Figure 1 reflect the
consistent economic outperformance of emerging
economies, some investors are reassessing the
primary role of emerging markets in their global
portfolio from one of diversifying their equity holdings
to one of generating higher expected returns relative
to developed markets. Over the ten years ended
December 31, 2009, the MSCI Emerging Markets
Index has posted an annualized return of 10.2%,
compared with an average annual return of –1.2%
for the MSCI USA Index. Going forward, investors
may wonder why they would not significantly
overweight emerging markets in their global equity
portfolio when emerging economies are widely
expected to grow faster than developed ones.