One of the major themes I wrote about at the beginning of this year (read the issue here) was a likely resurgence by emerging markets in 2012. As I wrote then:
“The second revival experts are calling for comes from the emerging markets. Powerhouses for a decade, emerging markets stocks suddenly took a break last year. Since most of the fundamental factors driving growth in China, India, Latin America and other fast-growing economies are still in place, several analysts expect the emerging market bull to resume in 2012.”
The year is still new, but the prediction is beginning to come true. As Dr. Marvin Appel and Gerald Appel, editors of Systems & Forecasts, wrote in the latest Investment Digest:
“Within the setting of the market rally, there have been some shifts in the relative performance of different areas of the market that have taken place since the start of the year. Utilities and consumer staples, which were strong last year, have been out of favor so far. The international sector was hit hard last year, but this formerly weak area of the stock market has been improving in relative strength on both a short- and intermediate-term basis.”
Based on emerging markets’ outperformance and their expectations, the Appels went on to recommend an emerging markets exchange-traded fund:
“One of our favorites is the iShares MSCI Emerging Markets Index ETF (EEM 43.93 NYSE) which is one of the most popular ETFs for gaining exposure to the emerging market area. EEM holds stocks in ten of the world’s largest emerging markets, with its three biggest weightings being China (17%), Brazil (15%) and South Korea (15%) as of December 31, 2011. It also holds stocks in Taiwan, South Africa, Russia, India, Mexico, Malaysia and Indonesia. ... After being weaker than the S&P 500 Index for much of 2011, a shift in strength has taken place, with EEM stronger than the S&P 500 Index for the past month. Moreover, EEM has crossed above its 200-day moving average, and has bested its high from last October. All of these developments are bullish, both for emerging markets in particular and for global stock markets generally.”
The Appels aren’t the only ones coming back to emerging markets. In fact, EEM was just one of three emerging markets funds recommended in the latest Investment Digest. The other two, focused on India and Latin America, were recommended by Joe Shaefer and Mark Salzinger, respectively. Joe Shaefer, editor of The Investor’s Edge, touched on some of the same turnaround themes as the Appels:
“Looking geographically, there are regions and nations that did well in recent years—and have great growth ahead of them—and regions and nations that did poorly—and have great growth ahead of them. I see India as one such opportunity. ... The India Fund, Inc. (IFN 23.80 NYSE) is invested in the creme de la creme of India’s biggest companies [and can] be purchased for an 8.7% discount to net asset value (NAV) right now. If the markets pull back, I imagine this may even widen a bit.
“There are a number of things to like about IFN. Its holdings include international competitors Reliance Industries, Infosys, ITC Ltd., HDFC Bank, Tata Consultancy and ICICI Bank. It sells at a discount to NAV. And it has brand new management. The fund sponsor is now (as of December 2011) Aberdeen Asset Management, a firm well-versed in Asian and sub- continent financial matters and investments. This is a management team that has already demonstrated its ability to return above-par performance in its other India-focused funds. ... This team likes to focus on the very best companies rather than take a shotgun approach. I expect they will winnow down the 90 or so companies that were in the portfolio last year to a more manageable 30 or 40 really worth owning.
“Finally, I like the fee structure: at a 1.32% total expense ratio, IFN may have the lowest investor expenses of all funds investing in Indian equities. And Aberdeen has stated they will keep the existing management-fee schedule.”
In the February 12 issue of The No-Load Fund Investor, Mark Salzinger reviewed Fidelity’s emerging markets mutual funds and highlighted the following as one of the best:
“Fidelity’s most attractive regionally-specific emerging markets offering is Fidelity Latin America Fund (FLATX), managed by Adam Kutas for the past three years. Compared to other Latin America funds, Fidelity’s has done quite well in recent years. For example, its 9.0% annualized gain for the two-year period ended January 31, 2012, exceeded the annualized gain of Price Latin America (PRLAX) by more than three percentage points.
“Though Fidelity Latin America has considerable holdings in Brazilian stocks, the total weighting in Brazil is about 10 percentage points less than is typical for funds dedicated to the region. While the fund also holds Mexican stocks, its biggest positive country differentiators include above-average positions in the Andean region: Chile (recently 13% of the fund), Columbia and Peru. Given the many positives of Chile (most notably a strong fiscal situation) and some of its companies, we applaud this positioning. We also appreciate that Kutas has apparently favored domestically oriented companies in the telecommunications and consumer sectors within Latin America as opposed to the major commodity exporters, which are more sensitive to volatile global growth characteristics than to strongly growing income levels throughout some parts of Latin America.”
All three of these funds have outperformed the S&P so far this year, and any would make a good addition to a portfolio looking for a little more emerging markets exposure.
Wishing you success in your investing and beyond,
Chloe Lutts
Editor of Investment of the Week
