Seeking a Portfolio Boost in Emerging Markets

Your portfolio could benefit from emerging-market exposure—in moderation.

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The decoupling thesis has had a rough patch, though. Using VWO as a proxy for emerging markets and EFA for the developed world, emerging markets fell right along with the industrialized world during the 2007-09 downturn. Both lost about 60 percent, peak to trough. On the other hand, emerging markets have outperformed developed markets since the market's 2009 bottom (up 89 percent vs. 44 percent). Over the past 12 months, emerging markets have done worse (down 18 percent vs. down 15 percent).

Political and economic risk are not unique to developing countries, so don't let those things scare you entirely away from emerging markets. Anytime you venture abroad, you're assuming risk you wouldn't assume at home. Says Baoicchi: "Geopolitical risk is not something that should be discounted in any international portfolio, as we're seeing in Europe."