What is an 'Emerging Market Fund'

An emerging market fund is a fund that invests the majority of its assets in securities from countries classified as emerging. These countries are in an emerging growth phase and offer high potential return with higher risks than developed market countries.

BREAKING DOWN 'Emerging Market Fund'

Emerging market funds are an attractive investment for growth investors. They can include securities from varying asset classes offering a range of options across the risk spectrum.

Across the world, companies are typically categorized as developed, emerging or frontier. Emerging market countries offer higher return with higher risk relative to developed market countries. They are usually considered more stable than frontier markets. Emerging market countries can be identified by market index providers and are defined by various characteristics.

Index provider MSCI provides the following list of emerging market countries.

Emerging Market Countries

Americas
Brazil
Chile
Colombia
Mexico
Peru
Europe, Middle East and Africa
Czech Republic
Egypt
Greece
Hungary
Poland
Qatar
Russia
South Africa
Turkey
United Arab Emirates
Asia
China
India
Indonesia
Korea
Malaysia
Pakistan
Philippines
Taiwan
Thailand

Emerging market country infrastructures and economies vary broadly across the world. These countries are in a high growth phase with rapidly expanding and improving market environments. Factors influencing their classification include macroeconomic conditions, rapidly increasing GDP rates, political stability, capital market processes, and financial market trading and settlement procedures. Many emerging market economies are also experiencing significant growth from middle class consumers helping to drive increased demand across business sectors. Overall, the potential for rewarding investment opportunities in this category of fund comes with relatively high risks.

Emerging Market Fund Investments

Emerging market funds seek to capitalize on the return opportunity presented by emerging market economies. Funds may invest in emerging market debt or equity to build a diversified fund offering for investors. Numerous debt and equity options are available for investors seeking to invest in a single country or a diversified portfolio of emerging market countries. In the emerging markets category investors will also find both passive and active funds providing emerging market exposure across the market segment.

Emerging Market Debt

Emerging market debt can offer the least risk among emerging market investments. Credit quality is a leading objective that differentiates emerging market debt funds, providing access to debt investments with varying levels of risk. Investors can invest in both passive and active funds. Leading indexes for passive market investment include the J.P. Morgan Emerging Markets Bond Index and the Bloomberg Barclays Emerging Market Aggregate Index.

The American Funds Emerging Markets Bond Fund is a top investment for investors seeking emerging markets debt exposure. For the one year period through November 30, 2017 the Fund had a return of 10.32%. This fund is actively managed and invests in emerging market government and corporate bonds. Its top holdings are in Mexico, Turkey and Brazil.

Emerging Market Equity

Emerging market equity encompasses a broad range of companies from emerging markets around the world. Investors can invest in passive indexes for emerging markets exposure or seek actively managed funds. Top indexes include the MSCI Emerging Markets Index and the S&P Emerging Markets Broad Market Index.

The American Century Emerging Markets Fund is one example of an emerging markets equity fund. The Fund is actively managed and uses fundamental analysis to choose stock investments for the portfolio. As of November 30, 2017, it had a one year return of 40.46% versus its benchmark, the MSCI Emerging Markets Index, with a return of 32.82%.

Asia ex-Japan and BRIC Countries

The emerging markets also offer market segments that are attractive for investment. Asia ex-Japan emerging market funds will include securities from Asia excluding Japan. This region offers exposure to the Asian emerging markets. Similarly BRIC funds will include securities from Brazil, Russia, India and China. The BRIC countries are known to be four of the most dominant economics in the emerging markets.

RELATED TERMS
  1. MSCI Emerging Markets Index

    An index created by Morgan Stanley Capital International (MSCI) ...
  2. Emerging Industry

    An emerging industry is a group of companies in a line of business ...
  3. Emergency Fund

    An emergency fund is an account for funds set aside in case of ...
  4. Asia ex-Japan

    Asia ex-Japan is the region of countries located in Asia, not ...
  5. Emerging Markets Bond Index - EMBI

    The emerging markets bond index is a benchmark index for measuring ...
  6. Debt Fund

    A debt fund is an investment pool, such as a mutual fund or exchange-traded ...
Related Articles
  1. Investing

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  2. Investing

    5 Emerging Market Equity ETFs to Watch in 2018

    Five top ETFs for emerging market investors.
  3. Investing

    Invest In Emerging Market Bonds With These ETFs

    With the variety of emerging market bond ETFs now on the books, it's become far easier for investors to diversify. Here's a look at a few options.
  4. Investing

    3 Risks Emerging Markets Debt Faces in 2016

    Learn about the major risks for emerging market debt in 2016. Discover how low interest rate policies by central banks fueled the growth of debt globally.
  5. Insights

    Turkish Lira at Biggest Daily Drop in 8 Years Following Attempted Coup

    A failed military coup against Erdogan's regime caused a mass Lira selloff. Here is a list of some ETFs with exposure to Turkey or the Turkish Lira.
  6. Investing

    ETF Flows: Emerging Market Equity ETFs Shedding Assets (EEM, VWO)

    Discover five exchange-traded funds that invest in emerging market equities and experienced large year-to-date capital outflows as of March 4, 2016.
  7. Personal Finance

    Why You May Not Need an Emergency Fund

    Emergency funds are considered mandatory by most financial-planning experts, but they can be expensive to hold and ultimately unnecessary.
  8. Investing

    The 3 Best ETFs to Short Emerging Markets Equities (EUM, EEM)

    Discover the emerging markets equity asset class, and learn about three different ETFs you can use to get varying amounts of short exposure to it.
  9. Personal Finance

    Most Americans Lack an Emergency Fund

    A recent study reveals that two-thirds of Americans can't come up with $1,000 for emergency expenses.
Hot Definitions
  1. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  2. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  3. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  4. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
  5. Return on Investment (ROI)

    Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency ...
  6. Interest Coverage Ratio

    The interest coverage ratio is a debt ratio and profitability ratio used to determine how easily a company can pay interest ...
Trading Center