Is There a Free Lunch in Emerging Market Investing?

This paper studies the diversification benefits from investing in emerging equity markets for the years 1990-1996. We focus on investable assets, namely U.S. and U.K. traded closed-ends funds, open-end funds and ADRs, for comparison with benchmark index performance from the IFC Investable indexes. We find that the performance of the indexes almost always provides benefits at least as strong as those from managed funds and ADRs. Open-end funds track the IFC index performance significantly better than the other investment vehicles. Finally, we reflect on the impact of the continuing trend towards global market integration on future diversification benefits and the practice of asset allocation.