Investors who put money into emerging markets equities have been rewarded handsomely in recent years. Rich in commodities with an abundance of cheap labor, the emerging economies have received mountains of cash from U.S. investors grown tired of tepid returns in their own markets. What’s more, emerging markets equities are likely to keep outperforming, given that they are still trading at discounts to stocks in the developed world. However, some of that discount can be attributed to the high risk and volatility that are part and parcel of investing in the emerging markets.
One of the top performers in this arena, the $916-million Acadian Emerging Markets Portfolio (AEMGX) is well diversified by sector. At year-end 2005, the fund’s exposure to the energy, finance, technology, telecommunications and materials industries varied between 14% and 17%. However, there is a heavy focus on East Asia in the portfolio–more than 57% of assets are parked in South Korea, Taiwan, and China. Despite the fund’s superb performance, the portfolio’s
average trailing P/E ratio remains a modest 9.2. The Acadian fund has been closed to new investors since August 2004.