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Welcome to Investing Insights. I'm your host, Ivan and Hampton.

Emerging market funds will have a tough act to follow in 26. The category racked up big gains last year following small returns

for years. And a mix of factors like trade tensions prompted many investors to shift their

dollars outside the U.S. Should you add emerging market funds to your portfolio? And which

ones were winners or losers? Morningstar's senior principal of ratings,

Russ Kennel dug into the data. The editor of the Fund Investor Newsletter is here to tell you

what he found. It's good to see you, Russ. Good to be here. Well, fortunes have reversed for

many emerging market funds. Many of them closed out 2025 with their best year in a decade.

What made the environment right for their outperformance?

There were a few things that came together.

One is simply that they had a long time of slow performance, so they were kind of due,

they were kind of cheap.

Another thing was sort of a sell America trade as the dollar went down, people were down on the U.S. in part because of tariffs. And finally, you just had some good growth stories happening, too.

And there has been a big shift in five-year performance tables after 2025. What happened, Russ? That's right. So last year was so big that

it really rearranged the leaders' tables, not just for last year, but for the five years. And I would

say that the biggest themes is that value came back strongly. And there were some funds that

owned U.S. stocks that had emerging markets exposure, and that U.S. exposure worked

really well until last year when obviously they didn't benefit from the falling dollar and other

things. And so the more pure emerging markets funds really came to the fore last year and are

now even ahead on the five years in many cases.

You wrote in Morning Star Fund investor that India went from a emerging market star to a dud.

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