Hidden Gems of Emerging Markets Investing

I am a student of macroeconomics and like to read about various macro-economic factors such as inflation, interest rate, labor productivity, education and how it impacts long-term prospects of a country. Based on such analysis, I like to come up with investing strategy and find out mutual funds, stocks or ETF and recommend them and invest personal money to test out these strategies (put your money where your mouth is:-)

Based on prominence of BRIC (Brazil, Russia, India and China) countries, I have been looking for ways to go beyond BRIC countries and look at other emerging countries. Countries in Laton America, Asia and Eastern Europe have been growing as fast or faster than BRIC countries and provide excellent investing opportunities.

Check out following article - top 3 countries are non-BRIC countries in emerging markets with Peru topping with 168% returns

Top 10 places to invest

However investing in one country or index poses significant risks due to political, social factors which are beyond individual investor's control.

So it is best to invest in a mutual fund focussed on large number of emerging markets. In my search for such mutual fund, I came across following two funds.

ULTRAEMERGING MARKETS PROFUND (UUPIX):
The investment seeks daily investment results that correspond to twice the daily performance of the Bank of New York Emerging Markets 50 ADR index. This fund invests at least 80% of assets to equity securities contained in the index and/or financial instruments that have similar economic characteristics as the index. This fund has YTD of over 32%. However this fund is only for investors who can tolerate swings of 10% in a DAY. But as long as your believe in macroeconomic factors of emerging countries, it provides excellent way to profit from it. I typically have a investing strategy of 35-50 for this fund means buy when it goes below $35 and sell when it goes above $50.

Vanguard Emerging Mkts Stock Idx (VEIEX):

The investment seeks to track the performance of the MSCI Emerging Markets index. The fund employs a passively managed investment approach by investing all or substantially all of its assets in a representative sample of the common stocks included in the MSCI Emerging Markets index. This index includes approximately 840 common stocks of companies located in emerging markets around the world.

This is fund for long-haul and provides an excellent way to get exposure to emerging markets at very low cost. It has YTD returns of over 22%. My recommendation is to invest in this fund with automatic investment plan which Vanguard provides.

With these two funds, even though you will not get returns of one country which may be above 100% in one year and down by 50% next year, they provide excellent diversification with lower risks and costs. It also saves you from tracking what's happening in political landscape of Pakistan or what new trick Venezuela's president Hugo Chavez is going to play

Happy (and safe) investing in emerging markets !

/Shyam

(Disclaimer: I am personally invested in both funds)