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Fund Spy

5 Top Emerging-Markets Funds That Look Beyond Emerging Markets

These managers have expanded the boundaries, and succeeded.

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In a recent column, we noted how new types of emerging-markets equity funds have become more common. The topic was discussed in much greater detail in a recently released research paper, “The Growing Complexity of the Emerging-Markets Landscape.” That paper points out that the traditional variety of emerging-markets equity funds, which focus primarily on large companies based in the bigger emerging markets, is preferable for most investors. The more-recently minted types--geographically flexible funds, small/mid-cap offerings, multiasset portfolios, and frontier-markets funds--generally lack long and successful track records, are too expensive, or have other traits that reduce their appeal.

However, there are a few exceptions. In particular, the geographically flexible group boasts several worthwhile offerings; five have Morningstar Analyst Ratings of Bronze or higher. Geographically flexible funds invest not just in emerging markets, but also in companies based in developed markets, as long as the firms have extensive business in emerging markets and meet the managers’ other criteria. Roughly two dozen emerging-markets equity funds regularly have weightings of 15% or higher in developed markets (such as the United States, Japan, and the United Kingdom); a few stand close to the 50% mark.

Gregg Wolper has a position in the following securities mentioned above: NEWFX, ODMAX. Find out about Morningstar’s editorial policies.