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Uneven Rally in Diversified Emerging Markets Category

Country weightings are hindering funds like Lazard Emerging Markets Equity Fund and Invesco Developing Markets during the rally.

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Gregg Wolper: Morningstar's Diversified Emerging Markets category, which includes emerging-markets stock funds, has been on a real roller coaster the past few years. It was struggling from 2013 through 2015, especially in 2015 when energy prices collapsed and Brazil, one of the larger emerging markets, was hit by political turmoil, corruption cases as well as the energy problem. In 2016 though, the category bounced back, partly because of Brazil's improved condition. Even though it was not getting that much better, perception was there, and energy prices bounced back.

The rally has continued this year. In 2017, Diversified Emerging Markets is one of the better-performing stock categories. But what's interesting is that the rally has not been evenly spread out. China and India are doing well, also Korea and Mexico. But some markets are lagging such as Brazil, which is not keeping up this year as there has been a return of political problems, and also, Russia is not doing well, South Africa, too. So, funds that are overweight in those countries can be some of the ones that are lagging and not taking full advantage of the rally.

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