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Two Favorites for Emerging Markets
07/23/2015 9:28 am EST
Emerging markets have not done well over the past month, but I expect things to improve, argues Bob Carlson, editor of Retirement Watch, who highlights two recommended emerging markets funds.
China has some problems that are the focus of most investors. Its growth rate is down, there isn't enough transparency in its financial markets and the economy is too dependent on exports.
However, changes are being made on these fronts, designed to be pro-growth and to move the country to a more domestic consumer-oriented economy.
Price New Asia (PRASX) should take advantage of the restructuring in China and the benefits that are likely to flow from that.
Price New Asia is typical of the funds from the T. Rowe Price family. It is a no-load, low expense fund and probably is the lowest expense fund in its category. It invests in stocks in Asian countries other than Japan.
The fund's management is experienced and has a strong record. Growth stocks are the usual choice of the fund. It looks for industry-leading companies with strong earnings growth that are selling at reasonable prices.
There are usually 100 or fewer stocks in the portfolio. Management looks for companies that meet its standards without giving much consideration to the countries in which they operate or the market sectors they are in.
The recent sector weightings were 29% in technology, 25% in financial services and 17% in consumer cyclical stocks. It was about 52% in emerging markets and 48% in developed markets.
The Asian markets had strong returns in most of 2014 and 2015, but have been correcting since April. I view the recent declines as a correction.
We also added DoubleLine Emerging Markets Fixed Income (DBLEX) to our portfolio. Unlike a lot of emerging market bond funds, this one minimizes exposure to government bonds.
It looks for corporate and quasi-government bonds (those issued by companies that are controlled or backed by governments).
Its main goal is to find companies that are improving financially. That way, their credit ratings are likely to improve and boost their bond prices.
At this point, the fund isn't taking currency risk for US investors. DoubleLine believes the dollar will remain strong against most currencies for a while, so the fund buys only dollar-denominated debt.
Recent top country allocations were Mexico (14.69%), Peru (12.62%), Colombia (12.49%), Brazil (11.66%), and Chile (9.53%). The recent yield was 5.25%.
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