A Financial Pioneer in Developing Countries Mark Madden Finds Gains in Emerging Markets, Because They Have More Room to Grow Than the US Does, He Says

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Discuss investment strategy with fund manager Mark Madden and before long phrases like "underperforming," "black clouds," and market "bottom" are bound to come up.

But this gloomy-sounding language doesn't refer to his outlook (he's actually quite optimistic). Rather it describes situations he seeks out.

As head of Pioneer's Emerging Markets Fund, Mr. Madden has taken the contrarian approach: He ignores "hot" stocks and concentrates on finding bargains in places some money managers shun, like Russia, Mexico, and South Korea. "We see all the same black clouds that everyone else sees, and I can tell you we have sweaty palms when we go in and start buying in some of these countries," Madden says in an interview at Pioneer's headquarters in Boston. "But ... if you're going to buy stocks cheaply, you have to look beyond the black clouds ... and say 'Are there bigger storm clouds beyond them, or is there sunshine?' That's basically our analysis every time." By sticking to the "buy low, sell high" road, Madden has kept his load fund in the top quarter of emerging-market funds for two years in a row. No small feat considering 1995 was rough for developing nations after the Mexican peso was devalued at the end of 1994. The average fund finished slightly in the red in '95; Madden stayed a few points on the positive side. Growing assets The news was better in 1996. The 2-1/2-year-old fund returned a respectable 17.8 percent, well above the 11.2 percent average return for diversified emerging markets funds, according to Lipper Analytical Services in New York. That performance hasn't gone unnoticed. The fund's assets quadrupled in 1996: from $25 million in January to $106 million by year end. Emerging-market funds in general saw assets surge 64 percent, as investors funneled $4.5 billion into them through November. Madden attributes the fund's asset growth to investors realizing "that the US market doesn't have a lot of upside steam left to it." Given that the US constitutes at most a quarter of the world's market capitalization, "there's a world of opportunity out there that most people today are still missing," Madden says. He suggests that people should invest in emerging markets for two reasons: "You have higher-growth economies and companies {that}, despite higher volatility, will produce superior returns" over the long run. "These markets are very inefficient," meaning savvy investors can find bargains on stocks. Madden takes advantage of the opportunities by moving in and out of investments quickly. His turnover rate, or the rate at which he changes the holdings in his portfolio, was a hefty 250 percent in 1995 and about 140 percent in 1996. He has a "more active management strategy than other international managers," says analyst Abhay Deshpande, who follows the fund for Morningstar Inc., the Chicago mutual-fund tracker. …


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