4 Foreign-Stock Funds That Aren’t Scared of Emerging Markets
Both moderate and bold options.
Emerging markets have seen more downs than ups lately. In 2011, as investors fled to safety amid macroeconomic concerns, the MSCI Emerging Markets Index, or EM Index, lost 18%--somewhat worse than the 12% loss of the MSCI EAFE (composed of developed-markets stocks) and far behind the S&P 500's 2% gain. And in 2013, while the two developed-markets benchmarks roared to new highs, the EM Index lost 3%. True, performance has improved in 2014: The EM Index has beaten the EAFE through July 23 (though it lags the S&P 500), and, outside of China and Korea, emerging markets have largely surpassed developed ones.
Nevertheless, emerging markets' bout of underperformance since the start of 2011 has left them trading at a larger discount to developed markets than in the recent past. At the end of June 2014 on a price/earnings basis, the EM Index traded at a 33% discount to the S&P and a 23% discount to the EAFE. That nearly matches its peak discount to the S&P over the past five years and substantially exceeds EM Index's discount over much of that span. Meanwhile, EM Index’s discount to the MSCI EAFE Index is wider than it was at the end of each of the past five calendar years.
Greg Carlson does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.