{"id":81057,"date":"2015-11-16T10:01:17","date_gmt":"2015-11-16T15:01:17","guid":{"rendered":"http:\/\/countingpips.com\/?p=81057"},"modified":"2015-11-16T07:37:53","modified_gmt":"2015-11-16T12:37:53","slug":"how-to-pick-an-emerging-market-fund","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2015\/11\/how-to-pick-an-emerging-market-fund\/","title":{"rendered":"How to Pick an Emerging Market Fund"},"content":{"rendered":"
November 16, 2015<\/div>
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By WallStreetDaily.com<\/u><\/a> \"Emerging<\/p>\n

By Tim Maverick<\/a>, Senior Correspondent<\/em><\/p>\n

If there\u2019s one truism I\u2019ve found during my years in the investing field \u2013 which date back to the 1980s \u2013 it\u2019s the fact that everything is cyclical.<\/p>\n

What runs hot will inevitably turn cold in a few years, and vice versa.<\/p>\n

This reality is beautifully illustrated in this following periodic table of asset class returns. The table appeared in The<\/em> Wall Street Journal <\/em>courtesy of Budros, Ruhlin & Roe in Columbus, Ohio.<\/p>\n

\"Asset<\/p>\n

The firm\u2019s advisors use it to explain to clients why diversification is necessary. It also reinforces my contrarian bent. For instance, I\u2019m not at all interested in the red-hot biotech and tech industries right now.<\/p>

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Instead, I\u2019m looking at a sector everyone is avoiding like the plague\u2026 emerging markets<\/a>.<\/p>\n

I\u2019ve been investing in emerging markets since the 1980s. Today, I\u2019d like to share some tips on how to pick the best emerging market funds \u2013 and, just as importantly, how to avoid the losers.<\/p>\n

Tip #1: DON\u2019T Use an Index Fund<\/h2>\n

Index funds seriously narrow your investing universe. That\u2019s true here in the United States, as well, but it\u2019s really<\/em> bad in emerging markets.<\/p>\n

Data from the Institute of International Finance brings home my point. Only about $7.5 trillion of the $24.7 trillion universe of emerging market stocks is contained in the various indices run by J.P. Morgan, MSCI, and others. The rest is simply ignored.<\/p>\n

I don\u2019t know about you, but I don\u2019t want to pretend that roughly 70% of emerging market stocks don\u2019t exist. As I\u2019ve said before, you don\u2019t shop in just one aisle at the grocery store. Don\u2019t do it in the stock market, either.<\/p>\n

Tip #2: Don\u2019t Invest in Closet Indexers<\/h2>\n

So now we\u2019ve eliminated index funds. Next up is looking at the top 10 positions in any fund you\u2019re considering.<\/p>\n

If you see the names of companies like Samsung Electronics Co. Ltd. <\/strong>(SSNLF<\/a>), Taiwan Semiconductor Manufacturing Co. Ltd. <\/strong>(TSM<\/a>), and China Mobile Ltd. <\/strong>(CHL<\/a>), move on.<\/p>\n

The fund manager is a closet indexer. They\u2019re only interested in matching the index by which they\u2019re judged, rather than actually making money for the fund\u2019s shareholders.<\/p>\n

Tip #3: Avoid Funds That Over-Invest in Two Sectors<\/h2>\n

Finally, it\u2019s important to look at the sector breakdown of a fund. In far too many cases, these funds are over-invested in just two sectors.<\/p>\n

If you see 50% or more invested into financials and technology, skip over this fund. This fund manager doesn\u2019t understand emerging markets and may be confused into thinking that they\u2019re investing in the U.S. market.<\/p>\n

Indeed, these two sectors are loved by U.S. fund managers, and that fascination is one reason I believe most emerging market funds have performed so badly.<\/p>\n

What to Look For<\/h2>\n

Now that we know what to avoid, let\u2019s figure out what we should be looking for <\/em>in an emerging market fund.<\/p>\n

I\u2019m a great believer that people are people, no matter where they live. And all people aspire to better their lives and those of their children. For me, that means investing in funds that emphasize the growing consumer class in developing economies.<\/p>\n

Look at China, for instance. It\u2019s moving away from an industrial economy toward a consumer economy. Just as we no longer consider U.S. Steel Corp. <\/strong>(X<\/a>) a bellwether for the U.S. economy, we probably shouldn\u2019t count on industrials to perform that role in China much longer, either.<\/p>\n

And that means you don\u2019t want to own the usual Chinese names.<\/p>\n

Instead, you want to own something like the South Korean cosmetics company AmorePacific Corp.<\/strong> (AMRPF<\/a>). Its sales and revenues are soaring thanks to Chinese demand, which is boosting its stock.<\/p>\n

Another option is a frontier market stock like Safaricom Ltd.<\/strong> (SCOM), Kenya\u2019s dominant telecom firm. Kenyans have the same mobile phone addiction as everyone else, and the safety valve is that it\u2019s 40% owned by telecom giant Vodafone Group Plc <\/strong>(VOD<\/a>).<\/p>\n

In closing, stick with funds that emphasize the growth of consumerism in places like China. Companies like Apple Inc. <\/strong>(AAPL<\/a>) are benefiting, and so will the myriad number of home-grown consumer companies in the emerging world.<\/p>\n

Good investing,<\/p>\n

Tim Maverick<\/p>\n

The post How to Pick an Emerging Market Fund<\/a> appeared first on Wall Street Daily<\/a>.
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By WallStreetDaily.com By Tim Maverick, Senior Correspondent If there\u2019s one truism I\u2019ve found during my years in the investing field \u2013 which date back to the 1980s \u2013 it\u2019s the fact that everything is cyclical. What runs hot will inevitably turn cold in a few years, and vice versa. This reality is beautifully illustrated in […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-81057","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/81057","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=81057"}],"version-history":[{"count":3,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/81057\/revisions"}],"predecessor-version":[{"id":81080,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/81057\/revisions\/81080"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=81057"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=81057"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=81057"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}