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Emerging markets equities have increasingly ignited interest for institutional investors in recent months and while commitments slowed in March due in part to geopolitical issues and what the industry views as short-term volatility, these investments remain beneficial to portfolios.

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“I think this trend of the best performing asset class gaining more attention and more assets generally holds true. Given that strong performance of 2025, we certainly expected emerging markets to be in vogue this year, and we likely expect continued growth,” said William Forde, head of marketable equity investments at investment consultant NEPC.

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Importantly to Forde, NEPC believes that earned growth drives equity performance.

“When you look at the equity growth expectations in the EM index, it has some of the strongest expectations globally. And so, because of that, I think investors are going to be tilted toward the emerging markets for the foreseeable future here,” he said.

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The big factors from a positive standpoint are some of the diversification benefits that EM provides, according to NEPC’s Forde.

“When you think about the U.S. and institutional investors likely being overexposed to growth, tech and AI, and there’s certainly some of that in the emerging markets, you get a much more diversified group of exposures investing within the EM asset class,” he said. “On top of that, you get exposure to emerging countries around the world that provide different growth trajectories relative to developed markets, which can all be diversifying depending on the overall asset allocation of the client. Some of the work that we’ve done would suggest that the rolling three-year correlations of emerging markets to developed markets has come down, therefore improved, over the past few years, providing some diversification away from a market which has been tilted more toward the Mag 7, AI and growth.”

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Forde heads up Boston-based NEPC’s marketable equity investment team of 11, where 100% of their time is devoted to finding the best managers across different asset classes, including the emerging markets. He thinks the space provides a better backdrop for active management.

“When you look at 2025, you’ve seen the median manager in the EM space outperform the MSCI EM Index by about 40 basis point,” he said. “There were certainly pockets of underperformance, but generally a pretty good year, while the median U.S. large-cap manager underperformed the S&P 500 by nearly 2%. And if you zoom out and look at that over a longer period, the same trend holds true, where EM managers typically prefer better from a relative standpoint than active managers here domestically.”

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Meanwhile, geopolitical risk is spread across the global market, according to Forde.

“We’re seeing it today here in the U.S., and so it’s tough for me to say that it’s any more a risk in the emerging markets. With that said, historically, EM has been a pretty volatile asset class, and investors certainly need to be aware of that when they think about the sizing of the allocation. We think the emerging markets are too big for investors not to allocate to, but understanding the volatility of the asset class should have implications on the way in which you size it, particularly relative to the broad MSCI ACWI Index,” he said.

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