Developed economies may take gold in Milan but emerging markets are winning advisors

American and Western European athletes may be dominating the Olympics in Milan Cortina, but when it comes to investing, the market leaderboard is being topped of late by countries far afield from the world’s developed economies.  

Emerging market stocks have been cleaning up, and wealth managers are taking notice – and action.

The iShares MSCI Emerging Markets ETF (Ticker: EEM), for the record, is up over 11% so far in 2026 and more than 37% in the past 12 months. By comparison, the S&P 500 is flat year-to-date and has returned 12% over the last year.

Meanwhile, the iShares Core MSCI Europe ETF (Ticker: IEUR) is up 6% in 2026 and 27% over the past year. Not too shabby, but still well behind emerging markets.

T.J. Kistner, chief investment officer of Retirement Plan Advisors, which is affiliated with Cambridge, holds a “strategic allocation” to emerging market equities in client portfolios. In his view, emerging markets can provide diversification benefits across currency, economic cycles, industry composition, and even monetary policy regimes. 

Not only that, but Kistner points out that emerging markets have significantly underperformed US and developed market stocks over the past 10 to 15 years, which – until last year - caused many investors to question whether there was any benefit at all in owning them. 

“We don’t utilize country-specific funds or investments,” Kistner said. “However, in our discussions with fund managers, many are bullish on South Korea due to the role that companies like Samsung and SK Hynix play in the buildout of the AI phenomenon, China due to the prospect of significant monetary stimulus, and India now that structural reforms have taken hold and driven significant economic growth.”

Elsewhere, Nate Garrison, senior vice president and chief investment officer at World Investment Advisors, finds emerging markets attractive relative to U.S. large caps due to their diversification benefits and significantly lower valuations.

“EM equities currently trade 5 to 10 turns of earnings multiple below the U.S., despite similar expected growth over the next several years. That valuation gap provides a meaningful margin of safety for the asset class,” Garrison said.

“We previously favored EM outside of China, but after the strong performance in Taiwan and South Korea last year—both of which are heavily tied to the U.S. AI trade—we reduced the tilt back to neutral. Since those markets are increasingly correlated with AI-driven U.S. large caps, overweighting them would dilute the diversification benefit we are seeking,” Garrison said.

Along similar lines, Coldstream CIO Bryan Shipley says valuations in many EM regions are significantly more compelling than domestic equities. Furthermore, he is seeing a “turn in the earnings growth prospects” in these markets, making the asset class even more attractive. That said, he says he remains “clear-eyed about the inherent volatility, geopolitical considerations, and currency risks.”

Because EM is a highly inefficient asset class with a wide dispersion of outcomes, Shipley believes this is an area where active management can add value.

“Rather than making concentrated top-down bets on specific countries or companies ourselves, we gain exposure through institutional-caliber investment management firms who can navigate local regulatory shifts and identify opportunities and risks that a broad index might underappreciate,” Shipley said.

HOW MUCH EM IS TOO MUCH?

Since the emerging markets allocation within the MSCI All Country World Index (ACWI) is around 10%, Kistner thinks a market-neutral weighting to emerging markets is a good starting point for investors. In his view, such a weighting provides him with sufficient exposure to the area with an opportunity to scale up or down depending on directional views, risk tolerances, or any other investor-specific considerations.

Garrison, however, is roughly targeting 12% of total equity exposure in emerging markets at the current time, given the “fundamental backdrop and more compelling relative valuations.”

Finally, Coldstream’s Shipley is keeping EM exposure in the 10% to 15% range for client portfolios. However, he says he is doing it more as a rebalancing necessity than tactical trade against the US.

“After a prolonged period of U.S. equity dominance, many portfolios have drifted into a domestic overweight. Periodically trimming those gains to build exposure in international and emerging markets isn't just diversification; it’s disciplined risk management,” Shipley said.

Added Shipley: “Emerging markets shouldn't be in a portfolio because they are 'exciting,' or because they’ve performed well over a short time frame, but rather because they provide resilience when global growth leadership inevitably shifts. The goal isn’t to guess which country wins next; it’s to ensure your investment strategy isn’t dependent on a single economy or theme.”