Money is flooding back into the biggest and broadest emerging markets portfolios lately. The basic investment thesis is clear: the emerging world is where the growth is. And so far, the prophecy seems to be a self-fulfilling one.
Profit from emerging markets with ODMAX, GEGAX, EMGAX, GBEMX, REMSX
Last week alone, $1.7 billion in fresh capital flooded into mutual funds and ETFs that concentrate on emerging markets. Most of this money is being allocated to portfolios with a global focus, while narrower country- and region-oriented funds are lagging.
As usual, we have seen ETFs — the preferred vehicles of hedge funds and other sophisticated investors — lead the way while “long-only” mutual funds take a more cautious approach.
If you believe that the mutual funds are gearing up to catch up to the trend and benefit from a bigger share of the new money flowing into the asset class, there’s probably no time like the present to investigate your options.
Start with the Oppenheimer Developing Markets fund (ODMAX, quote), Aberdeen Emerging Markets (GEGAX, quote), Wells Fargo Advantage Emerging Markets (EMGAX, quote), RS Emerging Markets (GBEMX, quote) and Russell Emerging Markets (REMSX, quote).
Funds like these reward a longer-term perspective — and as USA Today columnist John Waggoner argues, the main reason to invest in emerging markets is that more people are moving into the middle class in the long term, “meaning they have more money to spend on consumer goods, such as toothpaste.” He backs this up by using the example of Colgate of India, which saw a sales jump of 13% in 2011. Jim Jubak agrees.
Unlike indexed ETFs, which generally hold more or less the same emerging markets stocks in slightly different configurations, these funds are actively managed and any portfolio in the category will behave very differently from its peers.
This means over any given time frame, performance in the group will definitely vary depending on the specific stocks managers have bought or sold recently.
GEGAX, for example, recovered much faster from the global market gyrations of August, while REMSX was much slower to regain its footing. The other three funds in our basket have tracked more closely together over the last seven months, leaving investors to drill down into fees and other considerations before making a choice.
In any event, while all five of these funds have generated double-digit returns so far this year, selecting the right fund is critical. Are you interested in deeper emerging market mutual fund coverage here at Emerging Money? Let us know.