Emerging markets are often associated with faster growth and the possibility of higher investment returns. But does their historical performance support the case for holding more of them?
In our latest research, Laurentius van den Worm, Timeline’s Head of Investment Strategy, examines how emerging markets have performed against developed markets and what investors have had to accept in return. The answer depends, in part, on which developed markets you compare them with.
For financial advisers only. This research is intended for financial advisers and must not be distributed to retail clients.
Choosing the comparison
“Developed markets” doesn’t tell the whole story
It is tempting to compare emerging markets with a single developed world index and draw a conclusion from the result. But that index includes a substantial allocation to US shares. Comparing emerging markets with the US, with developed markets outside the US, or with the combined developed world can produce different answers.
The research separates those comparisons. It also looks beyond the return at the end of the period, examining how often emerging markets outperformed over rolling five, ten and twenty-year windows.
A useful question for investors
Which market are emerging markets being compared against, and what risks came with the return?
Looking beyond returns
The journey matters too
A return figure can tell you where an investment ended up. It says less about the experience of holding it along the way.
Our analysis looks at periods of loss, the range of possible historical outcomes and how sharply markets fell during difficult periods. Between July 1998 and December 2025, emerging markets recorded annualised volatility of 18.91%, compared with 14.31% for developed world equities1. That matters for investors who may need to draw on their money, or who could find it difficult to remain invested during a significant fall.
The paper also compares returns after accounting for risk. This gives a fuller picture than looking at growth alone: a higher return does not automatically mean a better return for the amount of risk taken.
Past performance is not a reliable indicator of future results. Historical index returns are measured in GBP and may increase or decrease as a result of currency fluctuations. Investments and their income can fall as well as rise, and investors may receive back less than they invested.
The portfolio question
What could emerging markets add?
Investors do not usually hold emerging markets in isolation. The more practical question is how they might contribute to a wider portfolio.
The research considers whether emerging markets offer a distinct source of returns alongside developed markets. It also examines the limits of that diversification: emerging and developed markets have often moved in the same direction, especially over longer periods. Holding both therefore does not remove the risk of a broad fall in share prices.
The bigger picture
A case that needs more than one number
The historical evidence for emerging markets changes with the benchmark and the period examined. Any assessment also needs to account for volatility, the possibility of prolonged underperformance and the degree of diversification they may provide.
Laurentius’s paper brings those measures together to offer a more rounded view of the potential role of emerging markets in a globally diversified portfolio.
Explore the full research
Read the detailed analysis in Laurentius’s full research paper.
For financial advisers
Download Laurentius’s full paper for the data, charts, methodology and discussion of risk and return.
Important information
This blog is prepared exclusively for use by financial advisers and must not be distributed to retail clients. It does not constitute advice, an offer or a solicitation to invest.
Compiled from sources believed to be reliable. Any views, opinions or estimates expressed, including any forecasts or forward-looking statements, constitute the author’s judgement at the time of writing, are not guaranteed and are subject to change without notice. None of Timeline, its directors, officers or employees accepts liability for any loss arising from the use hereof or reliance hereon or for any act or omission by any such person, or makes any representations as to its accuracy and completeness.
Past performance is not a reliable indicator of future results. Academic research portfolios generally exclude transaction costs and market impact and do not represent returns an investor could necessarily achieve. Investments and their income can fall as well as rise, and investors may receive back less than they invested.
Sources and Notes
- Timeline analysis of the Fama/French Emerging Markets Index and Morningstar Developed World Target Market Exposure Index, July 1998 to December 2025. Gross returns in GBP. Volatility figures are annualised over the full sample period and represent historical index performance, before investment fees and trading costs.