Goldman Sachs has a clear warning for investors: Emerging markets will continue to disappoint.
In a December report, the bank's investment management division predicted "the strong possibility of significant underperformance and heightened volatility over the next five to 10 years."
The client note, titled "Emerging Markets: As the Tide Goes Out," recommended that investors with a "moderate" tolerance for risk reduce their exposure by one-third, from 9 percent to 6 percent of overall portfolios.
It's not time to increase portfolios in those markets, even though it may seem attractive because investments appear to be cheap, the report warned.
(Read more: Bulls of Rio: JPMorgan Brazil fund feeling upbeat)
The iShares MSCI Emerging Markets Index is down 8.4 percent this year as of Dec. 20. It was down more than 17 percent in late June but has recovered slightly.
Goldman Sachs used the 59-page report to argue that growth in emerging markets from 2003 to 2007 was a result of specific economic circumstances that aren't likely to be repeated; the political and economic reforms needed to improve growth are too painful to undertake.
There has also been a "seismic shift" in investor sentiment on emerging markets for the worse. "The returns were not as attractive as expected, the economic growth rates were not as sustainable as imagined, and the countries were not as stable as believed," the report said.
Common themes in Goldman's pessimism on countries like China, Brazil and Russia include overinvolvement of governments in their economies, increasing reliance on commodities and unfavorable demographic trends.
(Read more: Place your bets: China or Japan?)
Goldman noted that China, for example, has five main problems: "severely imbalanced growth, a weakening demographic profile, financial repression that has distorted allocation of capital, growing pollution that has endangered the health of its population, and an antiquated household registration system known as 'hukou' that has hampered access to education and social services."
In Brazil, Goldman said, the government's large economic role is the most important reason for underperformance. That has created high interest rates, corporate strategy dictated by the government—often because of direct ownership—and high taxes.
Goldman expects "low single-digit" returns for emerging market local debt in 2014 with a range of gains and losses of about 10 percent. For stocks, the bank sees "high single-digit" returns with a range of gains or losses of about 20 percent.
—By CNBC's Lawrence Delevingne. Follow him on Twitter