The Lure of Emerging Markets
For years, investors shunned emerging markets stock funds, which have historically been regarded as some of the riskiest investments around.
Over the past decade, emerging markets stock funds have attracted just $4 billion a year on average, while domestic stock funds have pulled in more than $108 billion annually, according to Citigroup Investment Research.
But all that has changed in the past two years. Emerging markets stock funds have posted eye-popping gains of around 32 percent a year since 2005–and attracted investor interest, drawing in around $14 billion of new money annually. Last year, they took in more new money than domestic stock portfolios did.
Clearly, "mutual fund investors have been chasing performance," says Tobias Levkovich, Citigroup's chief U.S. equity strategist.
Indeed, investors are starting to chase performance all around the globe. In addition to the emerging markets, fund investors have been drawn to the developed markets of Western Europe and Japan, which have also performed well in recent years. Overall, international stock funds pulled in nearly $150 billion of net new investments in 2006. That represents nearly 93 percent of all equity fund inflows.
More Money Matters:
• Is the Emerging Markets Craze Over?
• The Emerging Markets Bull Run
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