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ETF Specialist

Additional Risk in Emerging Markets

There is even more risk in emerging-markets stocks beyond currency fluctuations and local economic policies.

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There is little debate that understanding risk is an important aspect of successful investing. When it comes to analyzing risk, historic metrics such as standard deviation and drawdown are typically used as a proxy for the level of risk contained within a given asset. However, high-level metrics such as these gloss over the nature and composition of those risks.

When comparing foreign stocks to U.S. stocks using these measures of risk, it becomes apparent that there is some amount of incremental risk in both developed and emerging markets. Exhibit 1 compares the volatility and drawdowns of stocks from the United States, foreign developed markets, and emerging markets during the past 10 years through May 2017.

Daniel Sotiroff does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.