Financial advisors seeking the best place to invest their clients' assets should take a close look at emerging markets, which have delivered handsome rewards for investors in recent years despite their volatility. The big question: do they have much room to run?  

BlackRock, the giant global asset management firm with $1.3 trillion in assets under management, believes that emerging markets will continue to be a significant driver of world growth and recommends stocks exposed to fast-growing regions such as China, India, and other emerging markets whose growth rates leave the U.S. in the dust. 

At a roundtable discussion at BlackRock's New York headquarters on Monday, some of the company's top money managers made a strong case for global as "the new core" of an investment portfolio. They also stressed the importance of dividend-paying stocks-especially for retiring baby boomers-and predicted the U.S. economy will keep slowing but won't but dip into a recession.

"In our view, global benchmark indexes are primed to supplant domestic equity indexes as the new core of an investment portfolio," said Thomas Callan, portfolio manager of BlackRock's global equities opportunities team. He predicted the S&P Primary Market Index (PMI Global) will eventually supplant the S&P 500 Index, long the primary benchmark for overall U.S. market performance.

Callan noted that emerging market equities-led by energy, telecom, materials, and industrial stocks-have built a solid lead over developed market stocks with gains of 43.4% through Sept. 30, versus 14.1% for developed market stocks in the same period. And they are expected to keep up the pace. "At a time when you would expect emerging market (stocks) as the riskier class to lag, it hasn't happened," he said.

BlackRock executives were also bullish on gold and energy. They expect prices of crude oil, which recently approached $90 a barrel, and gold, recently at $770 per troy ounce, will continue to climb. "I think gold will go higher because of the supply-demand conditions of the metal and the weak dollar principally," Callan told attendees.

BlackRock's global opportunities unit, consisting of three mutual funds-International Opportunities, U.S. Opportunities, and Global Opportunities-manages a total of $9.2 billion. International Opportunities ranked No. 1 among all global funds in a recent Barron's/Value Line "Top 100" Survey, with a one-year return of 39.94% as of September 30, 2007. U.S. Opportunities also placed in the survey.

BlackRock predicts global equity opportunities for investors will continue opening up as U.S. profits soften. The firm estimates world equity markets will return 10% to 15% in 2008, based on 10% earnings growth worldwide and modest multiple expansion.

Dan Chamby, associate portfolio manager of the BlackRock Global Allocation Fund, said the U.S. is far down the totem pole of economic growth with 14 other global economies ranked ahead of it. The current 45% share of world market capitalization held by the U.S. is projected to decline to approximately 27% by 2030, according to BlackRock. As such, the firm recommends that investors boost their non-U.S. holdings to as much as 55% of their portfolios.

"Global growth is not a zero sum game," said Chamby. "Emerging market economies are now pulling U.S. growth along at a faster pace than the U.S. would have sustained on its own."

Robert Shearer, senior portfolio manager of the firm's equity dividend and natural resources team, said that dividend stocks can help investors supplement Social Security while providing a safety net of added portfolio protection. He noted that since 1972, dividend-paying stocks in the S&P 500 have posted annualized returns of 10.3% versus 2.4% for non-dividend paying S&P stocks. He added that BlackRock doesn't believe that a U.S. recession is in the cards.

-Bruce W. Fraser