The price ratios of MSCI Emerging Market index stocks and MSCI World Equity are converging, meaning lower beta equity prices are moving in line with higher beta.

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The economies in the developed world are taking a toll on equity markets around the world, with the high beta emerging market equities getting crushed.

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The U.S. equity market has done almost as good as the wilder and higher beta stocks in the MSCI Emerging Markets index.

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The following Exhibit compares R-Squared, Beta, and Alpha for two hypothetical large-cap equity funds, and will be used to demonstrate how investors can more meaningfully compare the performance of mutual funds.

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Given their positive correlations with stocks and extreme cheapness, post-crisis, many of these types of bonds have simply been a lower-beta, lower-volatility way to access the strong equity market returns since 2009.

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That shows how the real beta in this market is in the advanced economies, with the global equity markets suffering because of systematic risk stemming from Europe and the U.S. Usually, when risk is avoided, riskier assets like emerging market equities suffer even more.

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