Emerging-Markets Equity Fund

An emerging-markets equity fund is an investment vehicle holding a collection of stocks from countries with young stock markets. Many have significant positions in China, India, and Brazil.

Emerging-markets stocks can provide effective diversification to a portfolio. Some emerging-market economies are growing at a fast pace, so investing in these regions can provide high return potential. However, their limited infrastructure and varying political systems create risk other economies might not have.

Because holding individual stocks is risky, a safer way to gain exposure to this asset class is through a collection of stocks. Like their developed-market equity fund counterparts, they present currency risk and local economic policy risk that domestic stock funds lack. Emerging-markets stock funds can be active or passive funds. Some researchers argue this asset class benefits from an active management approach of individual stock-picking rather than tracking a broadly diversified index fund. They argue that emerging-markets stocks are less followed, so there is a greater possibility these stocks are mispriced, presenting more attractive opportunities.