BlackRock (BLK), one of the largest money managers in the world, and the owner and manager of the iShares ETF family, pointed out Monday (February 1) that:

The current weakness (with stocks down around 6.5%) is roughly in line with the 5% to 8% declines we saw periodically last year as stocks climbed 60% from their March 2009 lows through year-end. From our perspective, we think it is likely that while the current correction may not yet be over, neither is the cyclical bull market.

Emerging market for alpha? Good hedge funds had a great decade as usual and many emerging markets also did well. Ten years ago most investors avoided developing countries and loved developed because of the 1990s bubble, Asia crisis and Russia default. When will the crowd learn to buy the unpopular and short sell the trendy? Not yet, judging by all the new institutional RFPs for long only emerging market mandates and the retail money swarming into similar mutual funds. Even more so than developed markets, emerging markets offer alpha opportunities from long/short security selection, timing and hedging, not buy and hold beta.

Lost decade? I ended up with an +18.59% CAGR after fees for the 2000s. Some did better, but that's not bad considering the level of diversification and limited risk. I select alpha vendors for most strategies but manage some special situations myself if I have an analytical advantage. I use global macro black boxes and micro risk metrics that seem to have predictive value. Emerging markets alpha has been a favorite strategy. One year ago and ten years ago many experts said to avoid "risky" emerging markets and "dangerous" hedge funds! Financial science is not rocket science; it's more complicated than that. I focus on robust mathematical models and geographic facts, not economic theories. I always strive to be long only of alpha.

In our last article, we examined charts for the S&P 500 and its sectors (as of January 21). In this article, we look at the charts for emerging markets equity funds.

Emerging markets (proxy: EEM) have suffered more than developed markets year-to-date, but have substantially outperformed the United States (proxy: SPY) and the EAFE developed markets (proxy: EFA) over the past year, as the two following charts show: (Click charts to enlarge)