You May Have More in GEMs Than You Thought

Many funds are joining in the emerging markets fun indirectly--check your exposure before adding more inadvertently

Kevin McDevitt, CFA 6 December, 2010 | 11:27AM
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There's good news for those interested in capitalising on growth in emerging markets--you probably already have more exposure than you think. When you look at where companies sell their products, not simply where they are domiciled or on what stock exchange their shares trade, an interesting picture emerges.

If you focus purely on conventional labels, most diversified international-equity funds or world-equity funds don't have significant emerging-markets stakes. The typical international large-blend fund has less than 8% of its assets in emerging markets, and the average world-equity offering has less than 7%. (Not surprisingly, the average international large-growth fund has far more--at nearly 15% of assets.)

Economic Versus Equity Market Exposure
Because of these relatively small average weightings, the traditional view has been that to get significant emerging-markets exposure, investors would need to buy a diversified emerging-markets fund, or even a regional or single-country fund. This has tied in with the notion that regardless of where a company does business, its stock price will usually move with its home market. This has tended to be true especially in the short run, where emerging markets have often moved together during corrections.

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Kevin McDevitt, CFA  Kevin McDevitt is an Editorial Director with Morningstar.