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Top International Funds Betting on Hard-Hit Emerging Markets

These funds have the latitude to venture into developing markets, but they can also get out if need be.

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Fund investors are famously fickle, often dropping out-of-favor offerings in favor of those that have generated strong recent returns. Given that recurrent tendency, recent asset inflows into emerging-markets funds are downright anomalous. Even though the typical diversified emerging-markets fund lost 20% of its value last year, funds in the group raked in nearly $20 billion in new assets during the year's first 11 months.

You've got to laud investors' contrarian instincts. Given that valuation is the best predictor of market performance, it's certainly better to buy emerging markets after a performance hiccup than it is after a period of scorching returns. That said, worries over emerging markets can't be shrugged off entirely, even if the case for long-term growth in these economies remains intact. As senior analyst Gregg Wolper notes in this article, worries over slowing growth and rising inflation have weighed on the Indian market, Chinese stocks have been buffeted by concerns over a real estate bubble and government efforts to slow growth, and the Brazilian market has struggled with worries over what a China slowdown would mean for its natural-resources-intensive economy.

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Christine Benz does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.