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Smaller-Cap Emerging-Markets Funds: Fad or Good Idea?

Think carefully before buying one of these funds.

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Emerging-markets funds fell off a cliff in 2011. Indeed, after posting gains of 65% or more in 2009 and returns in the high teens in 2010, diversified and regional emerging-markets funds suffered losses of 20% to 25% last year, as concerns about Europe's woes, worries about inflation in China and India, and other fears undermined stocks across the developing world.

But fund companies continued to introduce new emerging-markets funds at a fairly good clip in 2011. After launching a total of 31 diversified and regional emerging-markets funds in 2010, they opened 47 such funds in 2011.

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