On top of the challenges of investing in low-information markets, those risks can potentially derail certain emerging market strategies. Passive funds, for example, must follow strict rules that can make foreign markets particularly bumpy. If, for example, a passive fund must have a certain allocation to small- or large-caps, and events take a toll on either segment more than the other, such passive funds can struggle. Looking at emerging market investing options? Ex-U.S. equities — emerging markets include ...

Core Insights - Advisors are advised to avoid chasing actively-managed ETFs and mutual funds based on short-term performance, as a study from Morningstar indicates that most funds fall out of the top quartile by year two [1][5] Fund Performance Analysis - Morningstar's study analyzed approximately 9,000 mutual funds and ETFs from 2021 to 2024, revealing that passive funds generally maintain middle-tier performance over 10 to 15 years, providing more consistent but average returns [3] - Actively managed ETFs and mutual funds that initially performed in the top quartile often did so randomly, with a significant number dropping out of this category over time [4][5] Advisor Behavior and Trends - There has been a notable increase in advisor allocations to ETFs, particularly active ETFs, with 80% of advisors currently investing in them, and the share of active ETF assets rising from 25% in 2024 to 29% in 2025 [2] - Factors driving this trend include access to diverse markets and strategies, along with improved liquidity and transparency [2] Long-term Performance Considerations - The study highlighted that by 2024, out of 20 categories of actively managed funds, 11 categories had all their funds fall out of the top quartile, emphasizing the importance of long-term performance metrics over short-term gains [5] - Some actively-managed fund categories exhibited slightly better performance retention over three years, including intermediate core bond, foreign large blend, small blend, and small value [6]