Emerging Market Funds
Need Asset Management Advice?
Just ask Local Wealth Managers Vision IFP for Assistance »
With the popularity of major investment options such as equities, the cost of these shares have been driven up to a point where the majority are no longer value for money or undervalued making securing a significant investment return quite difficult for fund managers. This has lead to an increase in the number of, and investment in, emerging market funds. Emerging market funds are in most cases a mutual fund or exchange-traded fund (ETF), that invests all or the vast majority of it's funds in companies and assets in developing countries, predominantly countries in Eastern Europe, Africa, the Middle East, South America and Asia.
The actual term "emerging" markets can be quite misleading as it can refer to everything from financial powerhouses such as China and Brazil as well as more accurately described as emerging markets such as Indonesia and many of the more commercialised African nations such as Nigeria. Officially, a developing country who's economy is considered to be "emerging" is characterised as being vulnerable to political and economic instability, having low average per-capita income, and of being in the process of building its industrial and commercial base. The "emerging market" term is generally used by the investment community to identify developing countries with superior growth prospects.
Emerging Market Funds are typically a lot higher risk but as with most investments of this nature, high return. The idea behind the fund is that with greater, quicker growth from these younger economies than typically found in the developed Western economies. emerging markets will deliver a strong return on investment and have done so for the last ten years. However, this higher volatility means that if the right investment choices aren't made, you could lose a lot more than you are likely to on the FTSE and other major stock exchanges.
Many professional investors will consider the high potential returns of emerging markets funds as an important part of their portfolio but many are now starting to believe that the high returns of most of these emerging markets are no longer available. Investors in the UK are now believed to have over £40billion invested in emerging market funds with many of these having obtained very good returns from investing in countries such as China, Brazil and India. In fact, the average fund invested in the Chinese economy has increased by 112% in the past 5 years with one such fund returning a 159% gain to it's investors. In contrast, the average fund invested in the FTSE and UK companies has given a return of just 18% in this same period of time.
However, with many believing that the number of private, institutional and emerging market funds investing in these markets leading to an increase in the value of most companies trading on the stock markets, the possibility of finding undervalued investment opportunities is rapidly decreasing.
The actual term "emerging" markets can be quite misleading as it can refer to everything from financial powerhouses such as China and Brazil as well as more accurately described as emerging markets such as Indonesia and many of the more commercialised African nations such as Nigeria. Officially, a developing country who's economy is considered to be "emerging" is characterised as being vulnerable to political and economic instability, having low average per-capita income, and of being in the process of building its industrial and commercial base. The "emerging market" term is generally used by the investment community to identify developing countries with superior growth prospects.
Emerging Market Funds are typically a lot higher risk but as with most investments of this nature, high return. The idea behind the fund is that with greater, quicker growth from these younger economies than typically found in the developed Western economies. emerging markets will deliver a strong return on investment and have done so for the last ten years. However, this higher volatility means that if the right investment choices aren't made, you could lose a lot more than you are likely to on the FTSE and other major stock exchanges.
Many professional investors will consider the high potential returns of emerging markets funds as an important part of their portfolio but many are now starting to believe that the high returns of most of these emerging markets are no longer available. Investors in the UK are now believed to have over £40billion invested in emerging market funds with many of these having obtained very good returns from investing in countries such as China, Brazil and India. In fact, the average fund invested in the Chinese economy has increased by 112% in the past 5 years with one such fund returning a 159% gain to it's investors. In contrast, the average fund invested in the FTSE and UK companies has given a return of just 18% in this same period of time.
However, with many believing that the number of private, institutional and emerging market funds investing in these markets leading to an increase in the value of most companies trading on the stock markets, the possibility of finding undervalued investment opportunities is rapidly decreasing.
