Ronald van Genderen

Emerging markets outperformed developed markets in 2025 for the first time since 2017, driven largely by strong AI and tech gains in South Korea. This week Morningstar compares the Robeco Emerging Stars Equities fund with the Cullen Emerging Markets High Dividend Fund.

Morningstar has refined its Japanese equity framework as persistent style dispersion forces investors to reassess growth-focused fund selection in Japan.

One in five global dividend funds now integrates ESG criteria. Where sustainable funds in other segments have struggled to maintain their growth momentum, sustainable global dividend funds have seen strong inflows in recent years.

Equity markets in emerging countries extended their strong performance from the first six months of 2025 into the third quarter, led by heavyweight China, as well as Colombia, Egypt, Peru, Thailand, and South Africa.

Historically, US smallcaps have outperformed their European peers, with a difference of about 1.5 percent to 2.5 percent over 5-, 10- and 15-year periods, depending on the timeframe. In the first seven months of 2025, however, the situation has been reversed.

In recent years, global equity markets have been driven by the performance of largecaps, particularly in the technology sector, leaving smallcaps behind. That was the case in 2024, for example, when the Morningstar Global TME Index gained 25 percent while the Morningstar Global Small TME Index managed only a 16 percent increase.

Emerging markets extended their strong start to the year with another solid quarter. The Morningstar EM TME Index rose nearly 3 percent in Q2, outpacing the Morningstar Global TME Index, which gained 2.5 percent. As a result, emerging markets have now widened their outperformance over developed markets to nearly 4 percent year to date.

“Diversification is the only free lunch in investing,” said Harry M. Markowitz, the father of modern portfolio theory. He referred to the idea that broad diversification is likely the best way to limit portfolio risk without sacrificing returns.

Sustainable investing has been under pressure for some time, not least due to the policies of U.S. President Donald Trump. This shift in sentiment has also hit ecology funds hard.

Emerging markets delivered a relatively resilient start to 2025. Morningstar this week compares the Pzena Emerging Markets Focused Value fund and Stewart Investors Global Emerging Markets Leaders fund.