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What are people's views on Emerging Markets for the next 5 years? Lazard and AQR are very bullish. Is it always a tough sell with the BATNA being the S&P500/magnificent 7?
No more EM here. I'm avoiding even non-US/Canada developed Markets. My fund Managers have me in dev. Europe, a bit: just 0.66% in Britain, 3.39% of portf. on the continent. My lone exception is TS Tenaris: Oil Country Tubular Goods. Still a tiny holding.
No more patience with EM. Things are crazy enough HERE, Stateside. Middle East, Africa are pretty much lost causes, investment-wise. And I ran across something about India: regulation-wise, it's still like The Wild West. Hard for foreign companies to know when they've complied (or bought-off?) the "right" people or entities. Orban in Hungary is a "thorn in the flesh" for the EU. The lack of a unified single Treasure Chest to go along with the common currency is a built-in disadvantage. Although politically, the creation and growth of the EU is a great thing.
EM has been nothing but a black hole for me. Sold my two funds with relatively high EM holdings last year, and I’m sleeping better. My best performing EM fund (SFGIX) gained scarcely more than a mediocre bond fund in more than a decade of owning. Others fared even worse. (Eg, MAPIX) Mind you, various “experts” have been touting EM for many, many years — and they’ve been wrong. I don’t need to own any more investments that I might not live long enough to see gains.
Said it on here a couple years ago, stated back then I wouldn't invest a dime in China and that was the right call.
Why would you risk moving monies and investing in places where most couldn't pick them out on a map, don't have the same governance related to capital markets and rule of law and what exactly are you investing in other than some of kind of view on currency rates that you cannot invest in an American company and get the exposure that you are looking for?
Maybe, just maybe I would invest in an overseas holding company like Jardine to get exposure to a large and growing population but even then, nah, probably not..
Before I was blocked from reading it further, I think I saw the OP linked article state EMs have the best growth opportunities over the next 5-10 years, and if it doesn't all start now, it will within the next 1-2 years. Say what? Not quite the ringing endorsement I'd need to jump off the EM plank!
Anyone considering EMs needs to study the Callan Chart (below), and unless they are the amongst the world's best market timers, think again, and Just Say No!
At my age, 70, my risk tolerance won't allow me to carry a high enough percentage in a pure EM fund to make it worthwhile, so why bother. I agree with all who posted above.
Anyone considering EMs needs to study the Callan Chart (below), and unless they are the amongst the world's best market timers, think again, and Just Say No!
Many brokerages post bullish forecast on EM for many years. Relationships between China and US have deteriorated in recent years and many firms are moving their supply chains to other countries.
Also foreign investment is drying up in China. There are ample evidences of splitting the global economy into two. So where are the opportunities for investors?
Like other posters said, many developed market funds already have some % of EM exposure. Even big tech companies have sizable revenue from China, Why increase the risk?
EM? Ideal for small speculative positions. You can even hone in on specific areas like Latin America, Africa, Middle East. The trick is knowing when to get in (generally when things can’t get any worse) and when to get out (ie: just before Putin invades some small area country). Like @MikeM said - you reach an age where such speculative excursions no longer appeal.
To the broader question - Many international or global funds have small positions in EM. This exposure should be identifiable in the firm’s documents or by using M* or other analytics. That’s a much safer, less speculative way to get some exposure. Were I inclined to own a diversified global / international stock fund, I’d be comfortable with it if it limited EM to perhaps 20% of portfolio.
I found a 2017 M* (UK) article that sheds some light on the broader issue.
(excerpt) “For most global equity funds that invest directly in emerging markets, the allocation typically doesn’t rise above 5%. Just a handful of funds invest a significant portion of their assets in developing countries, with direct exposures exceeding 20% as per the end of March 2017.”
My experience with emerging markets has been along the lines of submerging markets and sunk costs. As @hank almost said, you can even hone in on specific areas to lose money in- the trick is knowing not to get in.
Even some of the "best" EM funds (e.g., SFGIX, which I tried for awhile) have experienced anemic returns over long periods. I asked myself: why? My hypothesis is that, while those economies may indeed grow faster, there is an immense amount of "friction" -- in the form of poor legal systems, governmental interference, lack of investor protections, insider and control shareholder self-dealing, and plain old corruption -- that prevents that economic growth from showing up in stock prices. Plus, of course, the simple fact that the best companies in the world tend not to be domiciled in EM countries. So I'm out, and if I'm wrong I'll live with that.
My experience with emerging markets has been along the lines of submerging markets and sunk costs.
Yes. Right out of Disney Studios - “A tale as old as time ...”
EM as an investment has not lived up to expectations. My first experience owning one was in the mid-80s. A “no-go” even then. The fund folded a decade later. @sfnative is spot-on with the reasons. Maybe we fickle investors play a small part too by moving money in and out of these funds and handicapping the managers. And fees are high.
I was being just a bit “tongue-in-cheek” referencing “speculative” opportunities. Yes - get the timing right and you can make money. I’ve had some luck in the past with PRLAX (Latin America) and DODEX. But speculative ventures by their very nature tend to be relatively small. So you’re not going to move the needle very much. Global / international funds that include EM are fine. However, in recent years I’ve moved away from plain vanilla equity funds into L/S and other types that can better hedge downside.
If the US$ were ever to turn convincingly south again like it did in the oughts, that would be the only situation where I'd consider pure EMs again - equity or bond.
"Ten years ago, many pundits foresaw a rebound in emerging-markets stocks, on the theory that they were worthy investments that had temporarily lost popularity. This "fashion argument" has failed the test of time. Such stocks have languished for good reason. Emerging-markets countries have treated their insiders much better than they have their outsider shareholders. For their stocks to appeal to long-term U.S. investors, that habit must change."
US-style capitalism has favored shareholders (not necessarily an equitable division of profits), but EM firms have funneled the dough into the hands of corrupt officials, founding families, and antidemocratic governments.
"EM firms have funneled the dough into the hands of corrupt officials, founding families, and antidemocratic governments."
Sounding more and more American as time goes on...count me in. I've been invested in Rajiv Jain's GSIHX since September 2018 and established a position in their EM fund last year, GQGIX. It's ~55% India and Brazil which I favor.
If there is an EM fund to be in, GQGIX has been the one. India has been on a tear and Brazil morerecently is doing well after many years of not. Good job and good luck @PRESSmUP.
@BenWP, US-style capitalism has favored shareholders (not necessarily an equitable division of profits), but EM firms have funneled the dough into the hands of corrupt officials, founding families, and antidemocratic governments.
I couldn’t agree more. I have to hold my noise investing in 529 plan that have Total International market index fund that has 20% EM. There are limited choice available. These days investing in EM is much worse than 20 years ago.
Buffet said that “there are few better place to invest than America” and he is spot on.
Anyone considering EMs needs to study the Callan Chart (below), and unless they are the amongst the world's best market timers, think again, and Just Say No!
In another thread, you've mentioned Rajiv Jain and GSIHX. Be aware that it holds about ~25% EM country equities. Much lower than his EM fund though.
Yeah, thanks. I never BUY a fund without reviewing a lot of stuff including of course its composition. Most of its EM is in India and Brazil and I am more than fine with those exposures, especially since I have negligible, I mean negligible, other EM exposure in my other funds.
I should have been clearer in my prior post. My comments were intended to be about dedicated Diversified Emerging Market funds. As others have noted, if you have a Foreign or Global stock fund, it's likely going to have at least some EM. GSIHX has a bit more than I'd prefer, but as stated, I have very little in my domestic dominated port.
EM bonds have outpaced EM equities for THIRTY YEARS. Nuthin' like waiting for the turnaround, I guess. Of course I got suckered in myself a few times. What an opportunity cost . . . .
@sfnative, I am not surprised that EM debt did better than EM stocks. Speculative debt acts almost like equity. And some EM debt now has higher quality than the developed-market debt. Even in the US markets, investors in shaky companies offer debt with equity kicker. There isn't much talk of taking equity with income kicker.
PREMX was giving me 7% (EM bonds) in '09-'10. I'm totally out of EM. Both bonds and stocks. Promises, promises. Bunk. This time, it's different? Nope. Run away and be very afraid.
Thanks @MikeM …I’d rather be lucky than good. But as @stillers Callian chart points out, the EM space is not a “buy and hold” environment.
You got it! EMs are feast or famine, and more often than not, famine. Inherent to EM investing appears to be hope, hope that this will be THE year, or the 2-year feast period .
And as the venerable Art Cashin used to always remind us, "(He) learned long ago that hope is not a viable investment strategy."
@stillers ...the EM space is a lot like a dice table in Vegas. Most of the time you're going to lose money. But...there's NOTHING like a hot dice table. Same for EM.
I own GQGPX and it's and don't mind it's 10+% Avg return over 5 yrs. Not bad when you consider both the Pandemic and the largest country allocation in EM index is struggling economically! Kept to a 2.5% allocation and part of my Int'l sleeve, it's a good option for those looking for a 'piece' of the action. FWIW - Int'l MF DODFX typically holds 15-20% in EM FWIW #2 - Most of the domestic giants in US make a lot of their $$$ from EM economies so you have exposure and may not realize it.
GQGPX is actually UP 9.36% over 5 years. EDIT_See corrected, more current data below thanks to @PRESSmUp. Thank you!
It lags the S&P in all regularly shown interim periods and was very poor for the past 3 years.
It is currently being fueled by its large stakes in India and Brazil, but also by its ~5% stake in (say what?) Domestic NVDA! Strip NVDA's parabolic TRs out of there and I trust you will have different TRs.
YTD_1_3_5_10 FXAIX_7.97_30.45_11.90_14.75_12.69 GSIHX_11.85_20.58_7.82_11.95_N/A NEAGX_15.64_28.34_10.39_22.37_13.16 GQGPX_9.27_26.41_0.31_9.36_N/A EDIT_See corrected, more current data below thanks to @PRESSmUp. Thank you!
If it doesn't consistently beat or at least track with the S&P, and carries and ER of over 1% (1.2%), we are generally NOT interested. FLG GSIHX's ER at 1.14% and SCG NEAGX's at 1.85% are our two exceptions. But we believe their two HIGH ERs are reasonable given their results. (NEAGX is noted here as IMO SCs are a much more attractive play in 2024 than EMs and NEAGX's performance supports that notion.)
Of course Domestic LC and even MC/SC can and do have indirect EM exposure. That's a given. But their respective performances are generally NOT driven by that exposure and are usually nominal to negligible. An investor really doesn't get much EM exposure unless they are holding DEM, Global and/or Foreign funds.
And while many investors may not be aware of their EM exposure, having invested directly in EM stock and bond funds for a coupla years, we keenly are. (FNMIX was a favorite when John Carlson was the PM.) We have some direct EM exposure via GSIHX (mainly India and Brazil) but negligible, if any, in all other funds.
Several years ago on the M* forum, stock and bond EMs were dissected ad nauseum. What I remember most about all that activity was a large group of retired investors, ourselves included, determined that there really is no need for direct EM stock or bond exposure in a retiree portfolio. The reasons: Why bother having to track and attempt to understand EM exposures? Why add that extra level of risk, when the TRs were not worthy of it?
For adventurous and perhaps younger investors (and also for expert market timers-raise your hands), EMs can be a viable playground when the EM cycle is in the UP mode. But the risks are clearly elevated and the DROPS can and usually do shake out weak hands at just the wrong time. The Callan Table that I previously posted is a clear visual of the feast or famine inherent to this category.
Comments
No more patience with EM. Things are crazy enough HERE, Stateside. Middle East, Africa are pretty much lost causes, investment-wise. And I ran across something about India: regulation-wise, it's still like The Wild West. Hard for foreign companies to know when they've complied (or bought-off?) the "right" people or entities. Orban in Hungary is a "thorn in the flesh" for the EU. The lack of a unified single Treasure Chest to go along with the common currency is a built-in disadvantage. Although politically, the creation and growth of the EU is a great thing.
Said it on here a couple years ago, stated back then I wouldn't invest a dime in China and that was the right call.
Why would you risk moving monies and investing in places where most couldn't pick them out on a map, don't have the same governance related to capital markets and rule of law and what exactly are you investing in other than some of kind of view on currency rates that you cannot invest in an American company and get the exposure that you are looking for?
Maybe, just maybe I would invest in an overseas holding company like Jardine to get exposure to a large and growing population but even then, nah, probably not..
Anyone considering EMs needs to study the Callan Chart (below), and unless they are the amongst the world's best market timers, think again, and Just Say No!
Click on the 2023 PDF Chart at
https://www.callan.com/periodic-table/
Also foreign investment is drying up in China. There are ample evidences of splitting the global economy into two. So where are the opportunities for investors?
Like other posters said, many developed market funds already have some % of EM exposure. Even big tech companies have sizable revenue from China, Why increase the risk?
To the broader question - Many international or global funds have small positions in EM. This exposure should be identifiable in the firm’s documents or by using M* or other analytics. That’s a much safer, less speculative way to get some exposure. Were I inclined to own a diversified global / international stock fund, I’d be comfortable with it if it limited EM to perhaps 20% of portfolio.
I found a 2017 M* (UK) article that sheds some light on the broader issue.
(excerpt) “For most global equity funds that invest directly in emerging markets, the allocation typically doesn’t rise above 5%. Just a handful of funds invest a significant portion of their assets in developing countries, with direct exposures exceeding 20% as per the end of March 2017.”
EM as an investment has not lived up to expectations. My first experience owning one was in the mid-80s. A “no-go” even then. The fund folded a decade later. @sfnative is spot-on with the reasons. Maybe we fickle investors play a small part too by moving money in and out of these funds and handicapping the managers. And fees are high.
I was being just a bit “tongue-in-cheek” referencing “speculative” opportunities. Yes - get the timing right and you can make money. I’ve had some luck in the past with PRLAX (Latin America) and DODEX. But speculative ventures by their very nature tend to be relatively small. So you’re not going to move the needle very much. Global / international funds that include EM are fine. However, in recent years I’ve moved away from plain vanilla equity funds into L/S and other types that can better hedge downside.
The same could be said for slot machines...
"Ten years ago, many pundits foresaw a rebound in emerging-markets stocks, on the theory that they were worthy investments that had temporarily lost popularity. This "fashion argument" has failed the test of time. Such stocks have languished for good reason. Emerging-markets countries have treated their insiders much better than they have their outsider shareholders. For their stocks to appeal to long-term U.S. investors, that habit must change."
US-style capitalism has favored shareholders (not necessarily an equitable division of profits), but EM firms have funneled the dough into the hands of corrupt officials, founding families, and antidemocratic governments.
Sounding more and more American as time goes on...count me in. I've been invested in Rajiv Jain's GSIHX since September 2018 and established a position in their EM fund last year, GQGIX. It's ~55% India and Brazil which I favor.
Buffet said that “there are few better place to invest than America” and he is spot on.
I should have been clearer in my prior post. My comments were intended to be about dedicated Diversified Emerging Market funds. As others have noted, if you have a Foreign or Global stock fund, it's likely going to have at least some EM. GSIHX has a bit more than I'd prefer, but as stated, I have very little in my domestic dominated port.
https://www.morningstar.com/stocks/when-bonds-beat-stocks-emerging-markets
Even in the US markets, investors in shaky companies offer debt with equity kicker. There isn't much talk of taking equity with income kicker.
And as the venerable Art Cashin used to always remind us, "(He) learned long ago that hope is not a viable investment strategy."
FWIW - Int'l MF DODFX typically holds 15-20% in EM
FWIW #2 - Most of the domestic giants in US make a lot of their $$$ from EM economies so you have exposure and may not realize it.
EDIT_See corrected, more current data below thanks to @PRESSmUp. Thank you!
It lags the S&P in all regularly shown interim periods and was very poor for the past 3 years.
It is currently being fueled by its large stakes in India and Brazil, but also by its ~5% stake in (say what?) Domestic NVDA! Strip NVDA's parabolic TRs out of there and I trust you will have different TRs.
YTD_1_3_5_10
FXAIX_7.97_30.45_11.90_14.75_12.69
GSIHX_11.85_20.58_7.82_11.95_N/A
NEAGX_15.64_28.34_10.39_22.37_13.16
GQGPX_9.27_26.41_0.31_9.36_N/A
EDIT_See corrected, more current data below thanks to @PRESSmUp. Thank you!
If it doesn't consistently beat or at least track with the S&P, and carries and ER of over 1% (1.2%), we are generally NOT interested. FLG GSIHX's ER at 1.14% and SCG NEAGX's at 1.85% are our two exceptions. But we believe their two HIGH ERs are reasonable given their results. (NEAGX is noted here as IMO SCs are a much more attractive play in 2024 than EMs and NEAGX's performance supports that notion.)
Of course Domestic LC and even MC/SC can and do have indirect EM exposure. That's a given. But their respective performances are generally NOT driven by that exposure and are usually nominal to negligible. An investor really doesn't get much EM exposure unless they are holding DEM, Global and/or Foreign funds.
And while many investors may not be aware of their EM exposure, having invested directly in EM stock and bond funds for a coupla years, we keenly are. (FNMIX was a favorite when John Carlson was the PM.) We have some direct EM exposure via GSIHX (mainly India and Brazil) but negligible, if any, in all other funds.
Several years ago on the M* forum, stock and bond EMs were dissected ad nauseum. What I remember most about all that activity was a large group of retired investors, ourselves included, determined that there really is no need for direct EM stock or bond exposure in a retiree portfolio. The reasons: Why bother having to track and attempt to understand EM exposures? Why add that extra level of risk, when the TRs were not worthy of it?
For adventurous and perhaps younger investors (and also for expert market timers-raise your hands), EMs can be a viable playground when the EM cycle is in the UP mode. But the risks are clearly elevated and the DROPS can and usually do shake out weak hands at just the wrong time. The Callan Table that I previously posted is a clear visual of the feast or famine inherent to this category.
YMMV.
According to M*, GQGPX has returned an annualized 10.18% over the last 5 years.