Emerging Markets Mutual Funds

Emerging markets mutual funds invest in countries that have recently industrialised or become free markets.

Investing in emerging markets may be of some interest to value investors, but most likely through specialist "stock-picking' funds.

The countries of interest would be seen as progressing toward becoming advanced, as evidenced by some liquidity in local financial markets and the existence of some form of stock exchange and regulatory body.

They will typically have a financial infrastructure including banks, a stock exchange and a unified currency but may not have the level of market efficiency and strict standards in accounting and regulation as with advanced economies.

Emerging markets are becoming recognised as a separate asset class in some countries.

They are commonly grouped in the 'alternative investments' category with investments such as hedge funds, private equity, venture funds, infrastructure funds and high-yield investments.

Emerging markets funds are sought by investors for the prospect of high returns related to faster economic growth.

Accompanying higher returns are increased risk factors that may include some combination of political instability, domestic infrastructure problems, reduced liquidity and currency volatility.

Superannuation funds have led the way into emerging markets and view them as long-term investments.

Exposure may be gained through specialist emerging markets managers with some funds tracking the MSCI Emerging Market Index (IEM).

Other emerging markets funds that are available include 'benchmark-unaware' funds. These are funds managed without reference to a benchmark, sometimes referred to as 'stock-picking' funds.

Because of the difficulty in investing in these markets from afar, these stock-picking funds may be of greatest interest to value investors as a number of these emerging markets mutual funds profess a value investing approach.

However, because of the increased risk, I limit my exposure to 5-10 per cent of my portfolio.

Return from Emerging Markets Mutual Funds to Managed Share Funds