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This figures to be an interesting year for emerging
markets. The current environment of falling share
prices, falling oil prices, and a strong dollar could
take us in a lot of directions. Let’s take a look at
emerging-markets Morningstar Medalists and how
they have performed of late.
Virtus Emerging Markets Opportunities
HEMZX
,
with a Morningstar Analyst Rating of Silver, per-
formed brilliantly, and it’s no mystery why. The fund
has a big overweighting in India and a big under-
weighting in China. India rebounded from a poor
2013
when the fund lost
6
.
6%
to have huge gains the past
12
months while China’s markets were flat. Rajiv
Jain has
28%
of assets in India versus
11%
for peers
and
7%
in China versus
16%
for peers. So, in the
short run, that positioning will have a major influence.
However, the main point of buying the fund is Jain’s
skill in finding high-quality companies at decent
prices, which ought to lead to solid long-term results
even if India’s markets are merely middling
for the next few years.
Bronze-rated
T. Rowe Price Emerging Markets
Stock
PRMSX
also put up top-decile
12
-month
returns. Gonzalo Pangaro doesn’t have big sector or
country bets. Rather, it’s issue selection among
growth stocks that has driven strong returns. Tech
names like
Taiwan Semiconductor Manu-
facturing
TSM
and
Baidu
BIDU
spurred results.
It’s a welcome sign, as things have been up and
down for Pangaro since he took over in
2008
. That
mixed long-term record is why the fund is Bronze
and not Silver.
Vanguard Emerging Markets Stock Index
VEMAX
had a top-quartile year—a rarity for an index
fund. Obviously, Vanguard doesn’t make deliberate
bets versus the category, but the category does
make deliberate bets versus the index. Specifically,
most have less invested in Taiwan than the
14%
found in the
FTSE
Emerging Index that this fund tracks.
Taiwanese stocks gained about
7%
in
2014
. Mean-
while, the index has no exposure to South Korea as
it considers that country a developed market, while
the typical fund has
9%
in South Korea, whose market
fell about
13%
.
Silver-rated
Harding Loevner Emerging Markets
HLEMX
posted a second-quartile return for the
trailing
12
months. We feature frontier markets in our
Research article this month, and they played a
supporting role for this fund. Pharmaceutical stocks
from South Africa, India, and Hungary boosted
returns in this eclectic portfolio. The emphasis is
on growth companies with clear competitive
advantages and strong growth rates, but the frontier
elements make the fund stand out.
Silver-rated
DFA Emerging Markets Value
DFEVX
lagged its peers a bit, showing that it wasn’t a
clean sweep for all passive strategies the past year.
The fund tilts to the value side of emerging markets
by limiting itself to the cheapest third based on
price/book valuations. Unfortunately, that bias led it
into some hard-hit oil companies like
Gazprom
OGZD
of Russia and
Petrobras
PBR
of Brazil. On
the plus side, the fund’s
10
- and
15
-year returns
remain strong. One challenge for the fund is that the
value screen will lead it into giant government-
controlled companies like Gazprom.
Gold-rated
American Funds New World
NEWFX
also lagged during the past
12
months. The fund gets
some of its emerging-markets exposure through
developed-markets companies mainly in Japan, the
United Kingdom, and Switzerland, and those were not
strong-performing markets the past
12
months, as
Japan and the U.K. were hurt by a strong dollar. While
the fund’s relative performance bounces around a
fair amount, it tends to be among the least volatile
because of its developed-markets exposure and
willingness to hold some cash and bonds.
K
Tops in Emerging Markets
Tracking Morningstar Analyst Ratings
|
Russel Kinnel
What Are Morningstar
Analyst Ratings?
Our ratings are chosen for long-
term success. Analysts assess
a fund’s competitive advantages
by analyzing people, process,
parent, performance, and price.
They do rigorous analysis and
then submit their ratings to a
committee that vets their work
for thoroughness and consistency.