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Attention Emerging-Markets Stock-Fund Shoppers

With the category one of the few losers so far this year, now might be just the time to consider one of these highly rated offerings.

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An otherwise good year for equities hasn't been so rosy for emerging-markets stocks. Led by fears of slowing economic growth in China, but also dragged down by lackluster returns in India and Latin America, emerging-markets stock funds have been among the few equity losers of 2013. As of July 29, the diversified emerging-markets stock category had lost 6% year to date. Meanwhile, China-region funds had dropped 2%, with the India and Latin America equity-fund categories each losing about 15%.

Despite a rough first half of 2013, diversified emerging-markets stock funds were up about 5% during the 12-month period leading up to July 29--nothing to write home about, but not horrible. But with the S&P 500 up 24% during that time, emerging-markets stock funds--which tend to be more volatile than their developed-markets counterparts--look like laggards by comparison. It's the continuation of a story that's been going on for a few years now, with the category modestly outperforming the index in 2010 and 2012 but experiencing steep losses in 2011, producing a three-year annualized return of a measly 1.2%. (Morningstar's John Rekenthaler notes in this recent column that despite the lackluster performance of emerging-markets stocks, investors have poured $140 billion into traditional mutual funds and ETFs investing in them during the past three years.)

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Adam Zoll has a position in the following securities mentioned above: PRMSX. Find out about Morningstar’s editorial policies.