The best mutual funds to buy are often those that invest in market segments that are beginning to recover from a long stretch of weakness. This makes the funds that buy emerging markets stocks worth a look now.
Returns for emerging markets, as measured by iShares MSCI Emerging Markets (NYSEARCA:EEM), were negative in four of the last five calendar years. And if you haven’t been paying much attention to international stocks, other than negative news like the recent Brexit vote, you might guess that emerging markets are still weak in 2016.
However year-to-date gains for EEM and average emerging markets funds are more than 11%. Although short-term investors may shy away from buying into recent strength, long-term investors still have a good opportunity to buy shares of a high-quality emerging markets fund.
For investors looking for the best mutual funds to buy for emerging markets, here are three choices to consider.
Best Mutual Funds to Buy for Emerging Markets: T. Rowe Price Emerging Markets Stock Fund (PRMSX)
Expenses: 1.24%, or $124 per $10,000 invested annually
Minimum Initial Investment: $2,500
If you’re looking for a solid actively managed emerging markets fund with reasonable expenses, the T. Rowe Price Emerging Markets Fund (MUTF:PRMSX) is one of the best mutual funds on the market to buy.
Emerging markets stocks are generally less efficient than those of the U.S. and developed markets, which means that a good fund manager can add value — or what financial statisticians call alpha — that can lead to index-beating performance.
PRMSX returns have consistently stayed ahead of average emerging markets funds and the MSCI Emerging Markets Index. Lead portfolio manager for more than seven years, Gonzalo Pangaro focuses on stocks that can beat the indices like AIA Group Ltd. (OTCMKTS:AAIGF), Baidu Inc (ADR) (BIDU), and Infosys Ltd ADR (NYSE:INFY).
Best Mutual Funds to Buy for Emerging Markets: Seafarer Overseas Growth and Income (SFGIX)
Minimum Initial Investment: $2,500
If you’re an investor more interested in performance than name recognition, one of the best funds to buy for emerging markets stocks is Seafarer Overseas Growth and Income (MUTF:SFGIX).
If you know much about emerging markets investing, you have likely run across the work of the Seafarer Overseas portfolio manager, Andrew Foster, who jumped ship at Matthews Asia Funds, a highly respectable mutual fund company that manages emerging markets funds, to start Seafarer Capital Partners in 2011.
Although SFGIX only has about four years of history, its 3-year annualized return of 4.1% beats 98% of emerging markets funds and has earned it a five-star rating from Morningstar.
The portfolio is fairly concentrated with just 46 holdings, such as Bank Pekao SA (OTCMKTS:AAIGF), Hang Lung Properties Limited (ADR) (OTCMKTS:HLPPF), and Samsung Electronics (OTCMKTS:SSNLF), but the small portfolio size can be a performance advantage, which has been the case thus far in the fund’s history.
Best Mutual Funds to Buy for Emerging Markets: Vanguard Emerging Markets Index (VEIEX)
Minimum Initial Investment: $3,000
Investors looking to forego the manager risk of actively managed emerging markets funds will like what they see in a cheap index fund like Vanguard Emerging Markets Index (MUTF:VEIEX).
The actively managed funds get the biggest returns in the emerging markets world, but even the best fund managers can make performance-busting mistakes.
For evidence of the performance potential of passively managed funds, look no further than the year-to-date return of 12.5% for VEIEX, which is ahead of nearly three-fourths of emerging markets funds. Long-term returns are also attractive at 4.2%, which beats nearly 60% of category peers.
The VEIEX seeks to track the FTSE Emerging Markets All Cap China A Transition Index, which means the portfolio is spread across over 4,000 stocks, most of which are large-caps like Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM), Tencent Holdings Ltd (OTCMKTS:TCTZF), and Naspers Limited (ADR) (OTCMKTS:NPSNY).
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities, although he holds EEM in some client accounts. His No. 1 holding is his privately held investment advisory firm in Hilton Head Island, SC. Under no circumstances does this information represent a recommendation to buy or sell securities.