3 Emerging-Markets Funds to Consider

Russel Kinnel: Emerging markets have been some of the worst performers over the past decade. China’s restrictions on businesses plus commodities corrections have led to pretty weak returns compared with those of the developed world. But these things go in cycles, so it’s possible these things will turn around and emerging markets will be the leaders over the next decade.

I’ve got three ideas for investing in emerging markets. The first two are ones I actually own, so you know my money is where my mouth is.

3 Emerging-Markets Funds to Consider

1. GQG Partners Emerging Markets Equity
2. American Funds New World
3. Matthews Asia Dividend

First, is GQG Partners Emerging Markets Equity run by Rajiv Jain, who is one of the best investors around. He’s won our Manager of the Year award by consistently producing appealing risk-adjusted returns. Jain looks for companies with strong balance sheets in industries with good growth prospects. That strategy seems to have kept the fund away from many of the land mines in emerging markets. We recently upgraded the fund to Gold, and as I mentioned, I own this one.

Should we label companies as emerging markets based on the location of their headquarters or on their revenues? American Funds New World says the answer is revenues. Thus, they look for companies with most of their sales in emerging markets, regardless of the location of their headquarters. The nice thing about that is you get a little added stability thanks to better accounting standards and rule of law in developed markets, but you’re still tapping growth potential of emerging markets. American Funds has a deep team of managers and analysts to find good opportunities across the world. I own this fund, and I’d note you can find share classes that don’t charge a front load.

Finally, Matthews Asia Dividend is back in our Medalist ranks after a manager change brought the fund back to its roots as a dividend-focused strategy. Robert Horrocks and Kenny Lowe are giving the fund its old profile of defensive income by investing in dividend-paying stocks, convertible bonds, and preferreds. It’s a formula that gave the fund an attractive profile until it strayed from that construction. But now it’s back, and we rate the fund Silver.

Watch “3 Great New Funds” for more from Russel Kinnel.