Video Transcript:

It’s no secret that emerging markets have offered more attractive growth than developed markets over the last 20 years. This higher growth—fueled by favorable demographics and advancing economies—is likely to remain in place in the years ahead.

A Vast Opportunity Set

Emerging markets offer a vast opportunity set for investors seeking increased exposure to international equities beyond developed markets. From large multinationals, to smaller local businesses, emerging markets dwarf U.S. markets by a wide margin in terms of its investable universe.

Investable Universe Number of Companies

Key Drivers Fueling the Growth of Emerging Markets - Investible Universe

FactSet, as of 6/30/21.

Beyond sheer size, emerging markets feature wildly differing geographies that have little in common with one another. This offers investors additional diversification potential and exposure to local economies, where foreign companies may not have a large presence.

Attractive Growth Potential

Emerging market economies are expected to produce strong growth in the years ahead, outpacing developed markets. According to the International Monetary Fund's World Economic Outlook, emerging markets and developing economies will grow 6.7% this year, compared with 5.1% growth for advanced economies.

GDP Growth Real GDP, Annual Percent Change

Key Drivers Fueling the Growth of Emerging Markets - GDP Growth

IMF, World Economic Outlook, April 2021. Past performance is no guarantee of future results.

Favorable Demographics

One major driver of this growth is the rise of the global middle class. By 2030, over 60% of the world’s population is expected to be a part of this cohort, with much of this growth coming from emerging market economies. China and India alone are poised to increase their middle-class populations by nearly one billion over this time.

The Rise of the Global Middle Class Millions of People

Key Drivers Fueling the Growth of Emerging Markets - Rise Of The Global Middle Class

CaixaBank Research, based on estimates by Homi Kharas. www.caixabankresearch.com “The Emergence of the Middle Class: An Emerging Market Phenomenon”, Claudia Canals, 16 September 2019 | Monthly Report – Dossier.

The global middle class is also expected to have more disposable income in the coming decade. This makes the business opportunity to serve this population even more attractive.

Rising Middle Class Incomes USD Billions, in PPP Terms

Key Drivers Fueling the Growth of Emerging Markets - Rising Middle Class Incomes

CaixaBank Research, based on estimates by Homi Kharas. www.caixabankresearch.com “The Emergence of the Middle Class: An Emerging Market Phenomenon”, Claudia Canals, 16 September 2019 | Monthly Report – Dossier.

Another demographic trend supporting emerging markets is how their economies have a far greater share of people below retirement age than developed economies. This will likely help support the expected growth and upward mobility of emerging economies for decades to come.

Percentage of People Below Retirement Age

Key Drivers Fueling the Growth of Emerging Markets - Percentage Of People Below Retirement Age

IMF, World Economic Outlook, Capital Economics. Quarterly as of 12/31/19

Low Index Representation

Today, emerging market economies are underrepresented in the global stock market. This is because emerging markets make up nearly half of global GDP, but only about 15% of the market cap of the MSCI All Country World Index. Investors who follow this index to help determine portfolio weightings are likely to be underweight economic exposure to emerging markets, which have changed dramatically over the last 10-12 years.

Emerging Markets Underrepresented in Global Indexes Nominal GDP

Key Drivers Fueling the Growth of Emerging Markets - Emerging Markets Underrepresented In Global Indexes

FactSet and MSCI. As of 12/31/20.

The MSCI Emerging Markets Index has also undergone dramatic change in this time. For example, Brazil has seen its weighting fall significantly from its peak in 2008. In the same period, mainland China’s weighting more than doubled.

MSCI Emerging Markets Index Country Composition 1/31/2011 – 12/31/2020

Key Drivers Fueling the Growth of Emerging Markets - MSCI EM Index Country Composition

FactSet. Composition and weightings subject to change.

The shift has been equally dramatic at the sector level.

Commodity-sensitive sectors no longer dominate the index as they did in 2008, when they made up nearly half of the benchmark, and technology only made up about 10%. At the end of 2020, commodity-sensitive sectors fell to about 17% of the index, while technology doubled to about 20%.

Today, the MSCI Emerging Markets Index more closely resembles a developed-market index, like the S&P 500®. This suggests that emerging market indexes may be maturing to some degree and could exhibit less cyclical “boom and bust” behavior going forward.

MSCI Emerging Markets Index Sector Composition 1/31/2011 – 12/31/2020

Key Drivers Fueling the Growth of Emerging Markets - MSCI EM Index Sector Composition

FactSet. Composition and weightings subject to change.

High Potential for Outperformance

With a larger opportunity set and lower analyst coverage than developed markets, emerging markets are a ripe marketplace for skilled active managers to uncover opportunities and potentially outperform their benchmarks.

Analyst Research Coverage Average Number of Professionals Covering Individual Stocks

Key Drivers Fueling the Growth of Emerging Markets - Analyst Research Coverage

FactSet, as of 6/30/21. Data is assumed to be reliable.

Compared to a passively managed index, active managers can gain greater exposure to countries, sectors, and businesses that are more closely aligned with secular growth trends—all while avoiding areas that face challenges.

For example, the MSCI Emerging Markets Index underweights the consumer­, which is seen as a key driver of future GDP growth in the decade ahead, given the expected rise of the global middle-class.

MSCI Emerging Markets Index Underweights the Consumer

Key Drivers Fueling the Growth of Emerging Markets - MSCI EM Is Underweight The Consumer

Allianz Global Investors U.S. Investor Education. As of 12/31/2020.

Final Thoughts

To put it simply, investors without an allocation to emerging markets may be missing out on a strong—and growing—segment of the global economy. Through our affiliated investment managers, Virtus offers a diverse range of dedicated emerging market solutions.

For more information, contact your financial representative, or visit Virtus Emerging Markets Resources & Solutions.

Past performance is not a guarantee of future results. The indexes are unmanaged, returns do not reflect any fees, expenses, or sales charges, and they are not available for direct investment.

The MSCI Emerging Markets Index measures equity market performance in global emerging markets. This index is free float-adjusted market cap-weighted and calculated on a total return basis with dividends reinvested.

The MSCI All Country World (ACWI) Is a free float-adjusted market capitalization-weighted index that measures equity performance of developed and emerging markets.

The S&P 500® Index is a free-float market-capitalization weighted index of 500 of the largest U.S. companies. The index is unmanaged, its return does not reflect any fees, expenses, or sales charges, and it is not available for direct investment.

Important Risk Considerations

Equity Securities: The market price of equity securities may be adversely affected by financial market, industry, or issuer-specific events. Focus on a particular style or on small or medium-sized companies may enhance that risk. Foreign & Emerging Markets: Investing in foreign securities, especially in emerging markets, subjects the portfolio to additional risks such as increased volatility, currency fluctuations, less liquidity, and political, regulatory, economic, and market risk. Non-Diversified: The portfolio is non-diversified and may be more susceptible to factors negatively impacting its holdings to the extent that each security represents a larger portion of the portfolio's assets. Geographic Concentration: A fund that focuses its investments in a particular geographic location will be sensitive to financial, economic, political, and other events negatively affecting that location. Market Volatility: Local, regional, or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues, recessions, or other events could have a significant impact on the portfolio and its investments, including hampering the ability of the portfolio manager(s) to invest the portfolio's assets as intended.

Not insured by FDIC/NCUSIF or any federal government agency. No bank guarantee. Not a deposit. May lose value.