The Perfect Emerging Markets Portfolio

Although the previous decade heralded the arrival of the BRIC (Brazil, Russia, India and China) nations, the current decade has a new class of emerging markets favored by investors. In fact, those markets, which are also known by a handy acronym -- CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa), have outperformed the BRICs in recent years.
I looked at the CIVETS nations [1] in the summer of 2010 and here is how they have performed since.

BRICs vs. CIVETS

  (Market returns as measured by a leading country-specific ETF.)

At the time, I suggested investors steer clear of Egypt, and this portfolio would have gained 16% if Egypt were excluded, outperforming the BRICs by 23 percentage points or by nearly 10% on an annualized basis.
Forget emerging markets?
Yet in that time frame, the S&P 500 has gained a robust 49%. In effect, you would have been wise to simply ignore foreign markets during the past few years and save yourself a lot of trouble. But that's not the way this period should be viewed. Short-term phases of relative performance do not highlight long-term dynamics at play, as well as the opportunities for investors.
Yet the past few years have taught investors that these acronyms are helpful only to a point. The BRICs are substantial economies and hold more than roughly half of the world's population. The CIVETs can be seen as regional hubs -- countries such as Turkey and South Africa conduct a great deal of trade with their neighbors.  (more)

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