Emerging-Markets Fans Ignore Bond Funds to Their Detriment
Emerging-markets bond funds compare favorably with their stock-fund peers.
It's clear that investors have a pronounced preference for emerging-markets stock funds over emerging-markets bond funds. As of Feb. 28, 2009, there were 141 mutual funds and exchange-traded funds with a total of $84.9 billion in assets in the diversified emerging-markets stock category (plus there were another 82 offerings with a total of $32.8 billion in assets in the regional emerging-markets stock groups). At the same time, there were just 31 mutual funds and exchange-traded funds with a total of $13.1 billion in assets in the emerging-markets bond category (and there aren't any regional emerging-markets bond groups).
This is rather surprising to us. Sure, emerging-markets stock funds have considerable long-term total return potential and can be excellent specialty holdings for the right investors, but the same is true of emerging-markets bond funds. And while there are a number of strong equity offerings that focus on the developing world, including T. Rowe Price Emerging Markets Stock (PRMSX) and Matthews Pacific Tiger (MAPTX), there are also a few good fixed-income offerings that concentrate on the developing world, including Fidelity New Markets Income (FNMIX) and PIMCO Emerging Markets (PEMDX).
Meanwhile, though emerging-markets stock funds compare favorably with their bond counterparts in some ways, the former don't measure up to the latter in several important respects. Here's how the two types of funds compare on the most important metrics.