Standard & Poor's has created a subscription platform, called MarketScope Advisor, to rank emerging market funds according to risk factors, expense ratios and turnover rates. According to Todd Rosenbluth, a funds analyst at S&P Capital IQ, its recent top picks include the Calamos Evolving World Growth Fund (CNWGX); the T. Rowe Price International Emerging Markets Bond Fund (PREMX); Fidelity's New Markets Income Fund (FNMIX); and the Driehaus Emerging Markets Growth Fund (DREGX). These funds were chosen, says Rosenbluth, for how rich the rewards were for the funds' risks. (Financial advisors can access the data on a two-week free trial at www.getmarketscope.com.)
Another approach to emerging markets is to open funds to multiple assets and invest in anything-bonds, currencies, commodities, stocks, etc., a strategy that offers broader frontiers. Managers choosing the multi-asset style have greater flexibility in market turmoil such as currency or commodity turns.
One manager taking this mixed-asset approach is John Carlson, the lead manager on the Fidelity Total EM Fund, FTEMX, a bond and equities portfolio launched on November 1, 2011. If beginnings can be believed, the fund looks promising (it has had an 8.13% return since inception through January 27, 2012). Carlson's strategy is spelled out in his 1998 paper, "The Relationship Between Bonds and Stocks in Emerging Countries."
Still, advisors like Harold Evensky, of Evensky & Katz LLC, have watched so many investment cycles blow through and leave theories in tatters, that he says it's hard now to work up a sweat over something new. He likes passively managed emerging market funds, but also likes the actively managed Matthews Pacific Tiger Fund (MAPTX), part of the Matthews Asia Funds family, which has a nice 14.7% ten-year average. And he's somewhat impressed by Cap IQ's Driehaus pick, which had the 11th best Sharpe ratio. Then again, the index oracle John Bogle, in his book Common Sense on Mutual Funds, has compared the hallowed measure of downside risk, the Sharpe ratio, to a "blunt instrument." One thing that is certain: This generation's emerging market investor will have more knowledge to work with than any before it.