Clash Of Titans: Diverging Global And Emerging Market Mid-Year Active Performance
Country concentration can matter as much as stock concentration. When one market becomes a larger share of a broad index, “global” exposure can quietly turn into a bet on a single economy. For long-term ETF investors, that means the label on the fund is only the starting point; the underlying country weights determine how much of the portfolio is really tied to the U.S., China, or other major markets.
That makes benchmark choice a central risk control tool. A fund tracking a world index, an ex-U.S. index, or an emerging markets index is not just changing geography — it is changing the source of return dispersion. In periods when one country dominates performance, active managers can look very different depending on whether they are underweight the leader, overweight laggards, or willing to own names outside their stated region.
For ETF allocators, the practical takeaway is to monitor implicit tilts. Broad international and emerging market funds often carry hidden concentration in a few countries, so portfolio rebalancing can drift more quickly than investors expect. That is especially important when combining U.S. equity, developed ex-U.S., and emerging market sleeves, because the overall portfolio may still be far less diversified than it appears at the asset-class level.
In other words, the key question is not only “which region?” but also “how much country concentration am I already owning elsewhere?” Reviewing regional weights, benchmark rules, and rebalancing discipline can help investors separate genuine diversification from overlapping exposures that move together when leadership shifts.
But as we’ve noted in our inaugural SPIVA® Global Mid-Year 2024 Scorecard, concentration trends can manifest at a broader level than individual securities, and more specifically at a country level. The U.S. has significantly outperformed the rest of the world over the past decade, with a 10-year annualized return for the S&P World Index of 10.6%, compared to an equivalent return of 6.2% for the S&P World Ex-U.S. Index. As a result, the weight of the U.S. component of the S&P World Index has risen accordingly, from 47% in June 2009 to over 70% as of the end of September 2024.
Turning our attention to the superpower on the other side of the globe, China’s weight in our emerging market benchmark, the S&P/IFCI Composite, declined from a peak of 37% in 2020 to 24% in June 2024 given the market’s economic and real estate woes. Since then, its weight rebounded to 27% as of September 2024, as China’s market staged a dramatic rally, with the S&P China BMI outperforming the S&P Emerging Ex-China BMI by 8% YTD through September.
So how did global equity active managers fare in this environment of contrasting U.S. and China performances in the first half of 2024? Our report shows that 71% of U.S.-domiciled Global Equity funds underperformed the S&P World Index, consistent with what we would expect from funds that systematically underweight the U.S. Meanwhile, international managers who gained outside-benchmark U.S. exposures may have benefited, as only 56% of U.S.-based international funds underperformed the S&P World Ex-U.S. Index.
Exhibit 2 shows that underperformance rates for the Global Equity (USD) category historically tended to worsen with U.S. outperformance. For global funds domiciled in Europe, Japan, Canada and Australia, the results were even bleaker, with 72%-82% of funds underperforming, perhaps because they were even more underweight the U.S. than their U.S.-domiciled counterparts. Underweighting the U.S. by these managers could potentially be due to home bias tendencies2 and a greater proclivity for domestic exposures.
Conversely, country dynamics were likely more accommodating for emerging market equity managers. Despite stock-level concentration headwinds consistent with those observed in the U.S., emerging market managers who were underweight to China may have benefited from the country’s poor performance. The S&P Emerging BMI underperformed the S&P Emerging Ex-China BMI by 2.5% in H1 2024.
In addition, Exhibit 3 illustrates that managers who tilted outside of their emerging market universe into developed markets, including the outperforming U.S. market, could have benefited considerably, as the S&P Developed BMI outperformed the S&P Emerging BMI by 2.6% over the same period. Perhaps capitalizing on both of these tailwinds, the U.S. Emerging Market Funds category posted majority outperformance, with 54% outperforming the benchmark S&P/IFCI Composite. The European-domiciled emerging market category fared slightly worse, with 55% of funds underperforming the benchmark.
Overall, the stellar performance of the U.S. compared to the rest of the world, coupled with China’s underperformance, may have led to mixed results across the Global Equity and Emerging Market Equity active fund categories during the first half of 2024. Although China’s rally has pulled back recently, if its turnaround is sustained, the tailwinds from an underweight to China may turn into potential headwinds for emerging market managers, the results of which we will have to wait to uncover once our year-end scorecards are released. Until then, dig deeper into how active funds across our reported categories and across regions fared in our SPIVA Global Mid-Year 2024 Scorecard.
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