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5 Best Emerging-Markets Funds for the Long Haul

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Emerging-markets funds are on fire. Over the past 12 months through April 18, the MSCI Emerging Markets index has returned 27.1%. That’s 7.6 percentage points more than the MSCI EAFE index of developed countries outside the U.S. and 9.6 percentage points better than Standard & Poor’s 500-stock index.

The rally looks likely to continue. Corporate earnings are growing at a rapid clip in many emerging markets, and the stocks are cheap. EM shares are trading at 11.9 times analysts’ estimates for the coming 12 months. That compares to a forward price-earnings ratio of 16.6 for the S&P 500 and 13.8 for the rest of the developed world. The World Bank projects emerging economies will grow 4.5% this year compared to 2.2% for developed economies.


Emerging markets do have their issues. For instance, EMs have higher rates of corruption than developed economies and many have not embraced capitalism. Russia is the poster child for these afflictions. Many emerging markets are dominated by commodity-producing companies, which tend to go through long periods of feast and famine. Others, such as China, have a high percentage of state ownership of publicly traded companies.

Historically, emerging markets have either led the pack or trailed it for multiyear periods. The most recent dry spell was from 2011 through 2015, when EMs lost an annualized 4.8% thanks to meager earnings growth, particularly in commodities. For the five previous years, emerging markets returned an annualized 12.8%, topping the U.S. and the MSCI EAFE index by more than 10 percentage points.

My advice: Own emerging markets, especially when they’re relatively cheap, as they are now. But don’t get carried away. Dedicating 10% or 15% of your portfolio to a good emerging-markets fund makes good sense to me. Here are my five favorites:

SEE ALSO: The 25 Best Low-Fee Mutual Funds You Can Buy

Data is as of April 18, 2018. Yields represent the trailing 12-month yield, which is a standard measure for equity funds. Click on ticker-symbol links in each slide for current share prices and more.


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