An Emerging Investment Trend

by Kristina on September 13, 2010 · 4 comments

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Everyone wants the hottest new investments, preferably investments with the least amount of risk but that offer the highest rates of return.  The reality of the financial world is that this type of product does not exist.  High risk investments may offer the highest potential return, but nothing is guaranteed.

In a bear market when investments are declining in value, these types of investments will probably have the greatest losses. However, during a bull market when the values of investments are rising, these same investments may offer the highest return.  It is a question of risk vs. reward.  Are you willing to take a certain amount of risk for a potential (but not guaranteed) reward?

One of the latest investment trends, and the most requested by clients, is Emerging Market Mutual Funds. These are usually Equity Funds that purchase stocks of companies in particular sectors, or corporate and government bonds of a particular geographic area.

Emerging Market Mutual Funds focus on developing countries that usually produce or manufacture goods. Emerging Markets are not quite yet the leaders of the financial pack. They are rising stars who are about to jump onto the financial map.  The current focus is on countries such as Mexico, China, Brazil, and India.

To provide some examples, here are 4 different Emerging Market Mutual Funds:

  1. Manulife Emerging Markets Fund focuses on Brazil as well as the Financial Sector.
  2. JP Morgan invests in China, India, and Brazil with their 4-Star Emerging Markets Fund.  Financials, Consumer Staples, and Information Technology are the top 3 sectors in this fund.  JP Morgan Funds also offer a Russia Fund, an India Fund, as well as a China Region Fund.
  3. Fidelity Emerging Markets Fund invests in Russia, Brazil, and South Korea.  This fund has been around for a while, and has a positive return over a long 10 year period.
  4. RBC takes a different approach with their Emerging Markets Bond Fund. They decided not to focus on growth, and to buy bonds rather than stocks.  I hold this fund in my portfolio because fixed income is considered to be less risk than equity mutual funds.  Investing in Emerging Markets is already a high risk investment, so I decided to gain foreign exposure through fixed income in hopes of lowering my potential losses.

As Emerging Market Mutual Funds are a relevantly new investment trend, the historical rates of return usually do not expand beyond 3 years (of course there are always exceptions).  Historical rates of return are never an indicator of future performance. But, it can give us an idea of how the fund performs during different market cycles.

When choosing a Mutual Fund I always look at the Investment Holdings, the Sector Allocation, as well as the Rate of Return Since Inception. Emerging Market Mutual Funds are considered to be high risk investments and should always be invested for the long term.

If you are considering investing in an Emerging Market Mutual Fund (or any other Mutual Fund) but you aren’t quite sure; please send us your questions and we would be happy to provide some information.

(Photo By Michelena)



{ 4 comments… read them below or add one }

1 Kyle September 14, 2010 at 1:32 am

While there has been a lot more focus on emerging markets lately, it has been possible to invest in them for quite a while; Vanguard has offered an emerging market index mutual fund since 1994. Just remember, certain investments (housing, gold) and sectors of stocks (tech, emerging markets) get a lot of attraction after they’ve performed very well. Often it’s the sign of a potential bubble. So if emerging markets is part of a well-defined asset allocation, then you’re good. But be careful you’re not running out to buy the next hot thing right before it starts to decline.

2 Dave November 23, 2011 at 10:37 am

This is a great article, Kristina. Emerging market mutual funds provide high risk but also a potentially high reward, and as you mentioned, they are something to consider as part of a long-term investment strategy. On top of the four funds you mention in your article, I’ve come across the Sun Life Tradewinds Emerging Markets Fund, located at http://www.sunlifeglobalinvestments.com/Slgi/Investment+products/Equity+funds/Sun+Life+Tradewinds+Emerging+Markets+Fund?vgnLocale=en_CA.

Thanks for putting together such a succinct article on the risks and rewards of investing in emerging market mutual funds!

Dave

3 Kristina November 23, 2011 at 6:18 pm

I invest in emerging markets through an international bond fund. It’s been performing great since I bought in 2009. We shouldn’t put all of our money into emerging markets but it is a great way to diversify the equity portion of our portfolio.

4 Kristina November 23, 2011 at 6:19 pm

I invest in emerging markets through an international bond fund. It’s been performing great since I bought in 2009. We shouldn’t put all of our money into emerging markets but it is a great way to diversify the equity portion of our portfolio.

Thanks for reading Guys.

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