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Emerging markets take it on the chin

What are we looking for?

How emerging market equity funds have fared so far this year.

Fast-growing economies in Brazil, Russia, India and China (the "BRIC" countries) used to be thought of as engines of growth that could drive the world forward, but lately these countries have struggled to maintain their momentum.

The screen

We examined the eight best and worst performers among emerging market equity funds from the start of the year to Aug. 27. U.S. dollar, segregated, pooled and duplicate versions of the funds were excluded, as well as those sold as part of a portfolio of funds, made up of other funds, or closed to new investors.

Emerging markets equity funds need to invest at least 90 per cent of their equity holdings across many developing countries.

What did we find?

Even the leaderboard was filled with laggards.

The only fund to post a positive return in the period was the Mackenzie Cundill Emerging Markets Class Series A with a diminutive return of 1 per cent in the period. The fund made its gains in the first part of the year, but has been tested in recent months.

Investing opportunities in emerging economies are changing from a focus on speedy growth to the hunt for continual growth, noted James Morton, the fund's portfolio manager, in a recent round of commentary. "The key for success in emerging investing ... has to be identifying solid businesses that can achieve reasonable and sustainable growth," he wrote. He added that the companies also need strong balance sheets and cheap valuations.

But finding such companies could prove challenging. Countries such as Brazil and India have been hit hard this year as investors pulled hundreds of billions of dollars out of emerging market equities.

The Mackenzie fund was especially affected by underperformance in Indonesia, Thailand and the Philippines in the second quarter of the year.

One key problem for emerging market equities has been indications by Ben Bernanke, the U.S. Federal Reserve chairman, that he will soon start to taper the Fed's asset-purchase program, which led to rising rates on U.S. Treasuries. This has offered less incentive for investors to buy higher-risk investment classes.



return% return (July 31)% returnAssets
FundTicker(to Aug. 27)1-yr3-yr5-yr10-yr20122011201020092008MER($-mil)
Mackenzie Cundill Emerging Mkts Value Cl-A1.0%16.0%1.2%-4.7%12.3%-29.7%39.2%48.5%-64.8%2.88214.7
Brandes Emerging Markets Equity-1.2%8.4%-0.6%4.1%8.5%10.4%-19.8%10.2%79.5%-35.7%2.70164.0
Redwood Emerging Mkts Dividend-2.1%5.5%13.3%-9.0%3.4329.1
Trimark Emerging Markets Class-4.4%6.0%6.5%2.551.7
Signature Emerging Markets-4.8%8.1%1.2%-1.7%7.6%14.3%-16.9%11.5%51.3%-45.6%2.72137.2
Russell Emerging Market Equity Pool-A-5.2%5.6%-1.7%-1.9%7.4%12.4%-20.3%8.3%60.6%-47.2%3.2430.7
TD Emerging Markets-5.9%7.3%1.2%-1.3%8.3%15.6%-17.4%10.8%41.2%-47.2%2.88146.4
iShares MSCI Emerging Mrkts Min Vol Index ETFXMM-T-6.2%7.4%0.7922.8
PowerShares FTSE RAFI Emerging Mkts Fdtl Cl A-17.0%-3.8%-4.7%13.3%-21.0%15.9%2.1524.6
Templeton BRIC Corp Class-13.8%-3.3%-7.1%-5.7%7.1%-24.8%11.9%62.6%-49.0%2.95175.0
Manulife Emerging Markets Equity-13.3%-2.6%-7.0%-6.1%10.3%-27.0%12.7%44.1%-43.9%3.059.2
Westwood Emerging Markets-13.2%-2.5%-4.8%-4.1%7.1%6.8%-18.2%7.0%50.9%-44.6%3.11314.1
HSBC Emerging Markets-I-13.1%-1.5%-6.4%-8.0%3.2%16.1%-26.7%6.2%43.8%-48.8%2.8512.1
AGF Emerging Markets-12.3%0.2%0.0%3.1%12.2%14.7%-14.6%15.3%60.3%-35.2%3.061,054.6
CIBC Emerging Markets-12.2%-1.6%-6.0%-2.5%5.7%11.5%-23.4%8.9%48.1%-33.5%3.0230.2
Pro FTSE RAFI Emerging Index-A-11.7%-3.9%-5.8%-3.9%5.4%-19.7%9.1%46.9%-39.0%2.047.5
MSCI Emerging Markets Free ($ Cdn)-8.5%5.7%1.3%0.9%9.9%16.0%-16.1%13.0%52.0%-41.4%
MSCI World ($ Cdn)17.0%27.3%13.3%4.9%4.8%14.0%-2.9%6.8%11.8%-26.1%
Source: Lipper

© 2007 The Globe and Mail. All rights reserved.

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