For Emerging Markets Funds, It's Been a Long Time Down

By Currier, Chet | THE JOURNAL RECORD, April 7, 1999 | Go to article overview

For Emerging Markets Funds, It's Been a Long Time Down


Currier, Chet, THE JOURNAL RECORD


NEW YORK -- For investors in emerging markets mutual funds, the last five years have been Murphy's Law in action. Whatever could go wrong did go wrong.

The trouble started with the Mexican peso crisis in 1994. It segued into Asian financial woes (1997 to present), Russia's default on its foreign debt in 1998, then currency devaluation in Brazil.

The net result: What once had been regarded as a promising road for investors seemed to have turned into a desolate dead end. But emerging-markets stock funds, bruised and battered as they may be, haven't dropped off the financial map altogether. In recent months, they have staged a respectable rally, though many clouds still remain in the outlook for this whole style of investing. "It's not pleasant to lose people's money. I think about that a lot," says Travis Selmier, manager of the $240 million USAA Emerging Markets Fund and of other international investments for the fund family run by USAA Investment Management in San Antonio. "But I generally feel that my investors know their risks, and a lot of people have stuck with it. I know at some point this is going to be a good investment for people." Over the five-year period ended Feb. 28, Morningstar Mutual Funds' composite of 165 diversified emerging markets stock funds averaged a negative total return of more than 10 percent a year, capped off by a drop of just under 30 percent in the latest 12-month period. The pain of that awful showing was compounded by the contrast to how well U.S. stock funds fared over the same period, averaging a gain of 16 percent a year. Everybody who puts money in volatile investments like emerging- markets funds is routinely advised to be ready to ride out short- term storms. But five years of repeated disappointment stretches the definition of "short-term." Yet despite all that, emerging-markets stock investments haven't lost all their allure for contrarian-minded investors, who love to pick through the debris of investment debacles for bargains. In the past six months, Morningstar's emerging-markets average has enjoyed a bounce of almost 14 percent. …

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