Top Emerging Markets Stock Mutual Funds

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With the United States and other developed countries teetering on the brink of a double-dip recession, one place IRA investors and others can find growth is in emerging markets mutual funds.

Put a bit more pessimistically — given how many investors are feeling these days — with this country looking like a banana republic, maybe your best bets are in, well, the former banana republics. Nowadays, many emerging countries don’t just have better growth prospects than developed countries, they have stronger fiscal positions, helped by their trade surpluses.

But exports are no longer the only story coming out of emerging market economies. The new growth curve is domestic consumption, as the burgeoning middle classes in places like India and China finally get to enjoy their newfound wealth.

To be sure, substantial political and economic risks endure, particularly in still-communist China where property values may be a bubble and where many inefficient state-owned businesses are coddled by the government.

While emerging market shares lost much more than domestic stocks in 2008’s bear market, they came back in spades last year. A strong case can be made for emerging-markets stocks in every diversified portfolio for those who can tolerate the risk.

The five funds below are a great place to start. All are rated four or five stars (out of five) by independent mutual fund rating firm Morningstar Inc. and have had the same manager for at least three years. All have outperformed the +22% gain of the MSCI Emerging Markets Index over the last year, to say nothing of the +10% gain of the Standard & Poor’s 500 Stock Index.

Matthews India Fund (MINDX)

Managers: Sharat Shroff (since 2006), Andrew Foster (since 2005)

Total assets: $1.0 billion

Expenses: 1.27%

Minimum initial investment: $2,500

Load: None

No one knows Asia like Matthews International Capital Management (MINDX), it seems. The India Fund is but one of the many four- and five-star Asian funds offered by Matthews, which has focused exclusively on Asia since 1991. Matthews claims to be the largest Asia-only investment specialist in the United States, and is one of the few asset managers with an India country fund.

That expertise shows in performance. The four-star Matthews India Fund has surged +49% over the past year, compared with the +22% gain of the MSCI Emerging Markets Index and the +10% rise of the S&P 500. It’s three-year track record is also striking: The fund gained nearly 8% annualized during the period, compared with the flat performance of the emerging markets benchmark and the nearly -8% annual loss of the U.S. market.

Co-manager Andrew Foster sees long lines of Indian moviegoers buying tickets that cost more than the average daily wage and sees insatiable demand for higher living standards. And increasingly, the consumer goods Westerners take for granted are available on store shelves throughout Asia, he says.

One of Matthews India’s largest holdings is Crompton Greaves, a multinational born in India’s colonial days.  The company makes power generation and transmission products to satisfy a growing nation’s electricity needs. Crompton Greaves has grown profits at compound annual rate of 40% over the past four years thanks to domestic growth and overseas acquisitions, according to a recent article in the Economic Times of India.

The fund is concentrated, with 31% of assets invested in the top 10 holdings, and follows a buy and hold strategy with annual portfolio turnover of just 18%. Matthews India is no load, with low annual expenses of 1.27% and a minimum initial investment of just $2,500. Other top-ranked funds in the family’s stable are the Matthews Pacific Tiger Fund, the Matthews China Fund, and the Matthews Asian Growth & Income Fund.

BlackRock Latin America Fund Class C (MCLTX)

Manager: William Landers (since 2002)

Total assets: $876.0 million

Expenses: 2.49%

Minimum initial investment: $1,000

Load: 1% deferred

The BlackRock Latin America Fund (MCLTX) gained +33% in the past 12 months, ahead of the MSCI Emerging Markets Index’s rise of +22% as well as the S&P 500’s +10% advance. The fund has returned more than +17% annualized over the past 10 years versus the -1% annual loss of the S&P 500. Performance like that in a four star fund easily overcomes the steep expense ratio of 2.49% and the 1% deferred sales load.

Manager Will Landers is betting on domestic-oriented stocks in the banking, communications and residential real estate sectors. Top holdings include Mexican wireless giant America Movil, Cyrela Brazil Realty and Mexican broadcast conglomerate Grupo Televisa, whose programming airs in the United States on Univision. Brazilian global natural resource leaders Petrobras and Companhia Vale do Rio Doce, the second largest mining company in the world, are also top positions. The fund is highly concentrated, with a whopping 53% of assets invested in the top 10 holdings.

The fund is easily accessible to investors with a minimum initial investment of just $1,000.

Virtus Emerging Markets Opportunities Class C (PICEX)

Manager: Rajiv Jain (since 2006)

Total assets: $480.5 million

Expenses: 2.49%

Minimum initial investment: $500

Load: 1% deferred

The five-star Virtus Emerging Markets Opportunities Fund (PICEX) seeks to limit risk by investing in well-established companies from across the emerging market spectrum. The fund’s volatility is below that of the S&P 500. Still, manager Rajiv Jain catches a lot of upside. The fund gained +32% over the past year, well ahead of the MSCI Emerging Markets Index’s +22% advance.

Jain’s top two holdings involve banking and housing in India: HFDC Bank and the Housing Development Finance Corp. A hefty 33% of assets is invested in the fund’s top 10 holdings.

The fund has a high expense ratio of 2.49% and a 1% deferred sales load, but the minimum initial investment is just $500. The fund returned nearly 3% annualized over the past three years versus the slightly negative return of the emerging markets index. What’s most impressive is that Virtus Emerging Markets has clobbered the Morningstar Diversified Emerging Markets category year to date and over the past one and three years. (The fund lacks a five-year track record.)

Oppenheimer Developing Markets Class A (ODMAX)

Manager: Justin Leverenz (since 2007)

Total assets: $14.6 billion

Expenses: 1.43%

Minimum initial investment: $1,000

Load: 5.75 %

Another five-star offering, Oppenheimer Developing Markets (ODMAX) gained +28% over the past year, ahead of the +22% advance of the MSCI Emerging Markets Index. The fund is also well ahead of the Morningstar Diversified Emerging Markets category year to date and over the past one-, three-, five- and 10-year periods. But the fund’s performance is not just good in a relative sense. Oppenheimer Developing Markets has returned +15% annually over the past 10 years.

Manager Justin Leverenz’ major holdings include Indian outsourcing giant Infosys and Brazilian retailer Lojas Americanas, which he expects to benefit from consolidation in the industry. He runs a relatively diversified portfolio, with 28% of assets in the top 10 holdings, but trades actively with an annual turnover ratio of 55%.

The fund’s minimum initial investment is just $1,000. Expenses are reasonable at 1.43% and the fund’s performance easily overcomes the 5.75% sales commission.

Wells Fargo Advantage Emerging Markets Equity Fund Class C (EMGCX)

Manager: Jerry Zhang (since 2006)

Total assets: $1.2 billion

Expenses: 2.78%

Minimum initial investment: $1,000

Load: 1% deferred

Wells Fargo Advantage Emerging Markets Equity Fund (EMGCX), also rated five stars by Morningstar, is a diversified fund with just 23% of assets in the top 10 holdings and relatively little volatility. Manager Jerry Zhang follows a buy and hold approach, with a portfolio turnover ratio of just 23%.

Results have been strong as the fund returned nearly +24% over the past year compared with +22% for the MSCI Emerging Markets Index. The fund has outperformed the Morningstar Diversified Emerging Markets category year to date an over the past one-, three-, five- and 10-year periods. In the last 10 years the fund delivered an average annual return of more than +12%.

Top holdings include China Mobile, Samsung Electronics and Grupo Televisa.

The fund’s expenses are awfully high at 2.78%, coming on top of a 1% deferred sales load, but its long term performance so far compensates for those costs.

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Article printed from InvestorPlace Media, https://investorplace.com/2010/09/top-emerging-markets-stock-mutual-funds/.

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