MarketGrader Indexes Rebound in Q2 as Long-Term Outperformance Endures

After a challenging first quarter, particularly across U.S. equities, MarketGrader Indexes delivered a much stronger second quarter, with 53 of the 83 indexes included in this quarter’s Report Card (64%) outperforming their respective benchmarks. The rebound was broad-based and more representative of the long-term characteristics of MarketGrader’s fundamentally driven investment methodology, with particularly strong relative performance across both U.S. and Developed Markets indexes.

U.S. Indexes

MarketGrader’s U.S. indexes recovered meaningfully from the first quarter, with 29 of 43 indexes (67%) outperforming their benchmarks during the second quarter. The strongest results came from the firm’s Core index family, where 16 of 23 indexes (70%) outperformed. Our U.S. indexes gained, on average, 12.1% during the quarter, with those that outperformed their benchmark rising on average 14.7%, while those that trailed their benchmark rising only an average of 6.9%. Our Core U.S. indexes did even better, rising 15%, on average, in the three months ended June 30th. These results suggest that the market environment became more supportive of MarketGrader’s rules-based, fundamental approach to company selection, which rewards businesses exhibiting strong growth, profitability, cash flow generation, trading at reasonable valuations.

Developed Markets

Developed Markets produced the strongest regional results during the quarter. Fifteen of MarketGrader’s 21 Developed Markets indexes (71%) outperformed their benchmarks, reflecting continued strength across a broad range of international markets, including Europe, the U.K., Japan, Australia, Israel and Canada. MarketGrader’s Developed Markets indexes gained an average of 10.6% in the second quarter, with those that outperformed their benchmarks rising 13.1%, and those that underperformed rising only 4.5%, on average. The results build on the improving performance of international equities observed earlier this year and underscore the benefits of applying a consistent, fundamentals-based company selection process across developed markets.

Emerging Markets

Performance across Emerging Markets was more mixed, with 9 of 19 indexes (47%) outperforming their benchmarks during the quarter. Our Emerging Markets indexes gained an average of 8.6% during the quarter, with outperformers rising by 11.9%, on average, and underperformers rising by 5.6%. While emerging markets continue to present a more challenging environment for our fundamental-based company selection over shorter time horizons, the quarter nevertheless represented an improvement from the first three months of the year and reflected greater dispersion in returns across individual markets and companies.

Looking Beyond a Single Quarter

Quarterly performance can be influenced by short-term shifts in market leadership, investor sentiment, and sector rotations. For that reason, it is useful to evaluate MarketGrader’s indexes over longer investment horizons, where the effects of our rules-based, active company selection become more apparent.

Looking first at the twelve months ended June 30, 2026, MarketGrader indexes continued to perform well overall. Forty-four of the 83 indexes included in the Report Card (53%) outperformed their respective benchmarks during the period. Developed Markets delivered the strongest relative performance, with 16 of 21 indexes (76%) outperforming, while U.S. indexes remained evenly balanced, with 22 of 43 indexes (51%) ahead of their benchmarks. Emerging Markets were more challenging, with 6 of 19 indexes (32%) outperforming, reflecting market dynamics discussed later in this article.

The longer-term picture is even more compelling. Over the five years ended June 30, 2026, 73 of MarketGrader’s 83 indexes (88%) outperformed their benchmarks. This includes 38 of 43 U.S. indexes (88%), 20 of 21 Developed Markets indexes (95%), and 15 of 19 Emerging Markets indexes (79%).

One of the strongest examples of the durability of MarketGrader’s methodology can be found within our U.S. Core index family. While 16 of the 23 Core indexes outperformed during the second quarter and 14 outperformed over the last twelve months, all 23 U.S. Core indexes outperformed their benchmarks over the past five years. The progression from 70% of indexes outperforming over the quarter, to 61% over one year, and ultimately 100% over five years illustrates an important characteristic of MarketGrader’s fundamentally driven company selection process: its advantages tend to become more evident as investment horizons lengthen and the effects of superior business fundamentals have more time to compound.

A Note on MarketGrader’s Global Market Classification

One important consideration when evaluating MarketGrader’s global indexes is our classification of South Korea and Taiwan. Unlike many global index providers, which continue to classify both countries as emerging markets, MarketGrader considers them developed economies based on the maturity of their capital markets, institutional frameworks, and overall economic development. As a result, our flagship Emerging Markets indexes generally exclude both countries, while our Developed Markets ex-U.S. indexes include them.

This distinction had a meaningful impact on relative performance over the twelve months ended June 30, 2026. The exceptional returns generated by South Korea and Taiwan contributed positively to several of MarketGrader’s Developed Markets indexes. Over the last year, the MarketGrader Developed Markets ex-U.S. Completion Index gained 99.4%, while the MarketGrader Developed Markets ex-U.S. Index advanced 46.4% and the MarketGrader Developed Markets ADR 30 Index returned 30.3%. By comparison, the MSCI World ex-U.S. Index gained 21.6%, while the FTSE All-World Developed ex-U.S. Index returned 29.8% over the same period.

The opposite effect can be observed within our broad Emerging Markets indexes. The MarketGrader Emerging Markets 100 Index, which excludes South Korea and Taiwan, gained 10.4% over the last twelve months. By comparison, the MSCI Emerging Markets Index returned 44.2%, benefiting in part from significant allocations to both countries. For investors who prefer that more conventional framework, MarketGrader also publishes the MarketGrader Emerging Markets (+ Korea & Taiwan) Index, which returned 47.3% in the 12 months ended last quarter. The index applies the same fundamentally driven company selection methodology while incorporating South Korea and Taiwan into the investment universe, allowing asset managers, wealth management platforms, and other clients to choose the regional classification framework that best aligns with their investment philosophy and product objectives.

Looking Ahead

The complete second-quarter Report Card, including performance for all 83 MarketGrader indexes and model portfolios, is available here.

In the coming days, we will publish a companion analysis examining how MarketGrader’s indexes performed relative to actively managed peers, followed by a closer look at our Developed Markets index family. That article will explore the construction of our Developed Markets indexes in greater detail, explain the role of South Korea and Taiwan within MarketGrader’s global classification framework, and examine the long-term performance of one of MarketGrader’s strongest-performing international index families.