Emerging market funds are high-risk, high-reward investments that provide exposure to financial markets of multiple developing countries. Vanguard emerging markets funds provide low-cost investments in baskets of securities of emerging markets. Emerging markets funds typically carry higher degrees of volatility than those invested in developed countries, and therefore, may indicate greater potential for higher long-term returns. Consequently, Vanguard emerging markets funds are best suited for long-term, highly risk-tolerant investors seeking to diversify their portfolios with investments in developing countries.
Vanguard Emerging Markets Select Stock Fund
The Vanguard Emerging Markets Select Stock Fund is an actively managed mutual fund that invests in common stocks of companies domiciled in emerging markets. The fund was issued on June 27, 2011, with the sponsorship of Vanguard. To invest in the fund, a minimum of $3,000 is required, and investors must pay an annual expense ratio of 0.96%. Although the fund has a high expense ratio of 0.96%, it is 37% lower than the average expense ratio of mutual funds with similar investments. The fund is managed by Wellington Management Company LLP, M&G Investment Management Limited, Pzena Investment Management LLC and Oaktree Capital Management LP.
The Vanguard Emerging Markets Select Stock Fund invests at least 80% of its $243.5 million portfolio in common emerging markets stocks. To be considered an emerging markets company, it must be located in an emerging market, have a principal office in a developing country or be organized under the laws of a developing country. Moreover, its principal securities market must be located in a developing country, and it has to derive 50% or more of its total revenue within an emerging market or maintain 50% or more of its total assets in one or more developing countries.
As of Sept. 30, 2015, the Vanguard Emerging Markets Select Stock Fund has an average annual return of -4.86% since its inception, while the FTSE Emerging Index, the fund's best-fit index, has an average annual return of -4.83% over the same period. Additionally, based on trailing three-year data, the Vanguard Emerging Markets Select Stock Fund has a standard deviation, or volatility, of 15.15%
Vanguard Emerging Markets Government Bond Index Fund Investor Shares
The Vanguard Emerging Markets Government Bond Index Fund Investor Shares was issued on May 31, 2013, with the sponsorship of Vanguard. It is managed by the Vanguard Fixed Income Group and charges a net expense ratio of 0.49%, which is 58% lower than the average expense ratio of funds with similar holdings. As of Sept. 30, 2015, the fund holds 863 bonds, which have an average effective maturity of 10.2 years and an average coupon of 5.6%. The fund has total net assets of $614.8 million, while the investor share class has total net assets of $8.8 million.
The Vanguard Emerging Markets Government Bond Index Fund implements a representative sampling strategy and is designed to track the general price and yield performance of the Barclays USD Emerging Markets Government RIC Capped Index, its benchmark index. The fund's underlying index includes U.S. dollar-denominated bonds with maturities greater than one year issued by emerging market governments.
Since the fund has a high average effective maturity, it carries a high degree of interest rate risk. It also carries emerging markets risk, country or region risk, political risk and asset class risk. Therefore, it is best suited as a satellite for highly risk-tolerant investors with long-term investment horizons seeking to diversify their bond portfolios with a basket of emerging markets government bonds.
Vanguard Emerging Markets Stock Index Fund Investor Shares
The Vanguard Emerging Markets Stock Index Fund Investor Shares is a mutual fund that seeks to provide investors with equity exposure to developing markets. It was issued on May 4, 1994, and has achieved an average annual return of 5.77% since its inception. The fund charges an average expense ratio of 0.33% and is advised by the Vanguard Equity Investment Group.
The Vanguard Emerging Markets Stock Index Fund implements an indexing strategy and invests approximately 95% of its total net assets in common stocks comprising the FTSE Emerging Index, its benchmark index. Additionally, it implements a sampling strategy with an intention to reduce its risk exposure. As of Sept. 30, 2015, the fund holds 1,061 stocks and has total net assets of $49.7 billion, while the investor share class has $1.5 billion in total net assets.
Based on trailing 15-year data, this fund has an average annual volatility of 23.38% and an average annual return of 7.30%. Like most funds that invest in securities of emerging markets, it is a high-risk, high-reward satellite investment for long-term investors seeking to diversify their portfolios with investments in stocks of emerging markets companies.