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Risk-Conscious Ways to Make Emerging-Markets Plays

These attractive emerging-markets funds provide a relatively smooth ride.

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Developing countries have enjoyed quite positive economic and demographic trends during the past 10 years. Governmental policies and corporate practices have also improved considerably in many emerging markets during the past decade. Equity funds that focus on the developing world have capitalized on these favorable conditions. The average diversified emerging-markets fund has earned a 14% annualized gain during the past 10 years, while the typical foreign large-blend, foreign large-growth, and foreign large-value offerings have posted 3%, 4%, and 5% annualized returns, respectively.

Most experts say the economic, demographic, government, and corporate conditions in the developing world will continue to improve for years to come. There are ample grounds, therefore, to be hopeful that diversified emerging-markets funds will produce good returns and outpace foreign large-cap offerings over the long run. (Diversified emerging-markets funds are unlikely to beat foreign large cap by as much over the next decade as they have over the last one, though, as the 2000s were exceptionally poor for most developed-markets stocks.)

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