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5 Emerging-Markets Medalists Weather the Storm

Looking back at a difficult 12 months for some of our favorite emerging-markets funds.

This figures to be an interesting year for emerging markets. The current environment of falling share prices, falling oil prices, and a strong dollar could take us in a lot of directions. Let’s take a look at some emerging-markets Morningstar Medalists and how they have performed of late.

 Virtus Emerging Markets Opportunities (HEMZX), with a Morningstar Analyst Rating of Silver, performed brilliantly with a 7.3% gain for the 12 months through March 10 (top 2% of the category). The fund has a big overweighting in India and a big under­weighting in China. India rebounded from a poor 2013 when the fund lost 6.6% to have huge gains over the past 12 months. Rajiv Jain has 28% of assets in India versus 11% for peers and 9% in China versus 17% for peers. So, in the short run, that positioning will have a major influence. However, the main point of buying the fund is Jain’s skill in finding high-quality companies at decent prices, which ought to lead to solid long-term results even if India’s markets are merely middling for the next few years.

Bronze-rated  T. Rowe Price Emerging Markets Stock (PRMSX) also put up top-decile 12-month returns with a 5.4% return through March 10. Manager Gonzalo Pangaro doesn’t have big sector or country bets. Rather, it’s issue selection among growth stocks that has driven strong returns. Tech names like  Taiwan Semiconductor Manufacturing (TSM) and  Baidu (BIDU) spurred results.

 Vanguard Emerging Markets Stock Index (VEMAX) had a 12-month return of 4.3% that landed in the top quintile. Obviously, Vanguard doesn’t make deliberate bets versus the category, but the category does make deliberate bets versus the index. Specifically, most diversified emerging-markets funds have less invested in Taiwan than the 14% found in the FTSE Emerging Index that this fund tracks. Taiwanese stocks gained about 10% over the past 12 months. Mean­while, the index has no exposure to South Korea as it considers that country a developed market, while the typical fund has 9% in South Korea, whose market fell about 7%.

Silver-rated  Harding Loevner Emerging Markets (HLEMX) was flat for the trailing 12 months, and that was a hair better than the category median. Frontier markets played a supporting role for this fund. Pharmaceutical stocks from South Africa, India, and Hungary also boosted returns. The emphasis is on growth companies with clear competitive advantages and strong growth rates, but the frontier elements make the fund stand out.

Silver-rated  DFA Emerging Markets Value (DFEVX) lagged its peers a bit with a 1.6% loss, showing that it wasn’t a clean sweep for all passive strategies the past 12 months. The fund tilts to the value side of emerging markets by limiting itself to the cheapest third based on price/book valuations. Unfortunately, that bias led it into some hard-hit oil companies like Gazprom (OGZD) of Russia and  Petrobras (PBR) of Brazil. On the plus side, the fund’s 10- and 15-year returns remain strong.

 

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