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Fund Spy

Emerging Markets Are on the Rebound

But beware of style differences in this broad Morningstar Category.

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Diversified emerging-markets strategies had a rough decade. From June 2010 through June 2020, the diversified emerging-markets Morningstar Category's average cumulative return of 35% was well behind all the broad, diversified foreign-focused categories and widely trailed the U.S.-focused categories. Recently, though, signs of life have sprouted. The category's 41.4% return from June 2020 through June 2021 topped the average return of the foreign large-growth, foreign large-value, and foreign large-blend categories. Investors have taken notice, and the diversified emerging-markets category attracted over $50 billion in net inflows over the trailing 12 months through June 2021.

Here's a look at how some of our highest-regarded diversified emerging-markets offerings have fared. 

American Funds New World (NEWFX) had a Morningstar Analyst Rating of Gold since we initiated coverage on it in November 2011 until January 2021, when it fell a notch to Silver. Twelve comanagers oversee separate portfolio sleeves, and they collectively take a unique, risk-focused approach to investing. Since its initial rating through June 2021, the fund's 146.4% cumulative return nearly doubled the category average's 75.6% and beat the MSCI Emerging Markets Index's 85.8%. This fund's downside protection is largely to thank; across 10 market drawdowns since 2011, this fund experienced lower losses than the bogy in all 10 events. The managers will often invest in developed-markets companies that have meaningful emerging-markets revenue exposure, like Microsoft (MSFT), Facebook (FB), and Alphabet (GOOGL), which has helped fuel its rise. The fund continued to outperform in 2021 through June; its 10.0% return easily topped the index's 7.5% gain.

A quality-oriented approach by manager Lewis Kaufman of Artisan Developing World (ARTYX) continues to pay off. The fund maintains the same Bronze rating it initially earned in July 2017. Its 144.8% return since it was first rated through June 2021 far outpaced the 37.7% and 40.7% returns from the category average and index, respectively. This fund's strong growth bias, which has been in favor for most of its life span, has been a tailwind. Not surprisingly, the fund has struggled out of the gate in 2021 as value stocks rallied early in the year, and its 6.7% year-to-date return through June trailed its average peer's 8.8% and the bogy's 7.5%.

Silver-rated GQG Partners Emerging Markets Equity (GQGPX) has performed well since it was first rated in May 2019. Its 49.6% return from then through June 2021 topped the category's 43.3% and the MSCI Emerging Markets Index's 44.6%. Manager Rajiv Jain is a patient manager who looks for durable companies that can withstand economic slowdowns. However, he often pays up for these companies, and the fund has a distinct growth tilt compared with the index or peers. In past years, the fund's growth bias helped distance it from the average peer and the index, though it, too, has struggled in 2021 as value stocks rallied. Its 4.0% year-to-date return through June ranked in the category's bottom quintile.

Since earning its Bronze medal in June 2013, T. Rowe Price Emerging Markets Stock's (PRMSX) 93.2% return through June 2021 easily topped the index's 76.0%. Managers Gonzalo Pangaro and Eric Moffett tend to own larger, less-volatile stocks than category peers and the MSCI Emerging Markets Index, which has led to relative underperformance in the trailing 12 months as smaller-cap, higher-volatility stocks rallied. Pangaro is retiring in January 2022 after an impressive run on this strategy. The fund's 6.6% annualized return over his tenure from September 2008 through June 2021 beat the bogy's 6.4% and the average rival's 5.7%. Moffett is expected to continue to execute the strategy in a similar fashion after Pangaro departs.

Jack Shannon does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.