For someone getting started as an investor, it would be considered crazy to invest in a company across the world. But that company and that country could be on the upswing with a massive investment upside waiting. A safe way to get in on that action is through emerging markets funds.
Emerging markets are considered areas of the world, which are literally emerging as they develop and industrialize. Since investments are based on growth, everyone wants to get in on the "ground floor," so-to-speak and invest in a company as its starting. As a result, emerging markets mutual funds are popular as a more risky investment. There's a definite upside, but also plenty of risk; both economical and political.
Geographically, funds for emerging markets are based on the following regional breakdown:
3. Middle East and Africa
4. Europe emerging markets mutual funds
Emerging markets change oftenDefining the countries which are considered "emerging" is a moving target. It's a matter of interpretation because determining whether a country is emerging or has emerged is subjective. Morgan Stanley Capital International (MCSI) lists the countries as being 25 country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and Turkey.
Choose the right emerging markets fundsFunds are typically made up based on an index or multiple indices. There is an index based on all of the major companies in Eastern Europe, for example. Specific mutual funds or exchange traded funds (ETF) can be traded, so the investor owns a very small stake in all of the companies in that fund. iShares, for example, sells a fund under the ticker-symbol EFA, an index of the growing companies in the MSCI list of Eastern European countries.
Stay up to date about top emerging markets fundsEmerging markets mutual funds are risky investments because the economic and political landscape in some countries can shift quickly. A political revolt somewhere in Africa can dramatically impact the price of emerging market funds weighted heavily in African equities. Likewise, Eastern Europe funds or Asian funds can be politically impacted by instability of a major company in those areas. To invest in an emerging markets growth fund, one must become a large-scale consumer of international news.
- Be diversified. Even top rated emerging market funds are considered risky investments which should be balanced by investments in other markets or sectors. So when a political upheaval somewhere in the Middle East might tank your mutual funds for emerging markets, it won't impact other investments.