EM stocks will clobber US equities, according to a top value investing manager

EM stocks – or emerging market stocks – will top U.S. equities well into the next decade.

That’s the prediction fromGMO, an investment manager specializing in long-term value investing.

The firm predicts that US large-cap stocks will decline 3.7% annually over the next seven years while emerging market stocks will generate 5.2% annual return over the same period. Within emerging markets, value stocks could garner returns of as high as 9.8% annually.

US stocks on a tear, investors worry

The bull run in US equities is now a decade-old, but stocks continued to touch record highs and have given double-digit returns this year. Investors worry about the possibility of a recession and a correction in stocks.

Long-term investors such as pensions have benefited from a bullish trend in the US stock market this year. They remain adequately funded to meet their obligations. However, a bear market could easily catch them off guard.

GMO’s view

GMO notes that fixed income returns could dismal during the period to 2026. However, they expect developing economies to deliver positive gains.

“We continue to favor emerging market value stocks, which are trading cheap relative to our long-term equilibrium assumptions,” said Rick Friedman, a member of GMO’s asset allocation team.

EM stocks already strong in 2019

As mentioned separately in a DailyAlts article today, year to date, emerging market stocks (8.6%) have outperformed Hedge Fund Research’s global hedge fund benchmark index (7.8%).