The Overseas Opportunity You Don't Want to Miss
Although panic levels have receded in recent weeks, the eurozone crisis is far from over. While Greece has managed to buy itself some breathing room with its ongoing debt restructuring, that nation still faces substantial long-term financial burdens. Fellow debtors Portugal, Italy, and Spain aren't much further behind Greece on the path to needing some combination of massive assistance and debt relief.
Adding to the region's troubles, fiscal austerity measures have pushed most of the eurozone back into recession. At 10.8%, eurozone unemployment is now at its highest level since 1997, while manufacturing continues to contract. Though markets don't seem to be panicking over the situation just yet, this region has a long way to go before financial health is restored -- and that's causing investors to look elsewhere for foreign investing opportunities.
A taste of the exotic
Emerging markets are an obvious alternative for the debt-laden eurozone region, and for good reason. For the most part, developing nations are not nearly as fiscally burdened as their more developed European counterparts. That's not to say they haven't been affected by the slowdown in Europe; many of these nations have primarily export-led economies that have taken a hit as Europe flounders. But many other emerging economies are still much more financially healthy, at least debt-wise.
And given that emerging countries are generally projected to have higher rates of growth in coming years, there's a lot more profit potential (albeit more risk, too). In fact, HSBC's emerging markets index, a quarterly indicator derived from various purchasing managers' surveys in the service and manufacturing sectors, shows that in the opening three months of 2012, emerging markets grew at their fastest clip of the last three quarters, even as the eurozone slipped back into recession. So if you want in on the most promising overseas investing opportunities, emerging markets are where it's at. And fortunately, there are several high-quality mutual funds that can help get you in the game.
One top-shelf choice in this arena is Matthews Pacific Tiger (MAPTX), which focuses primarily on emerging Asian nations. China, Korea, and India together account for roughly 54% of fund assets, although other countries like Indonesia, Hong Kong, Thailand, and the Philippines also get fair representation. The management team looks for companies with strong long-term earnings potential and reasonable valuations. While fast-growing, industry-leading stocks like China Mobile make an appearance in the portfolio, you'll also find smaller gems like Philippines-based mall operator SM Prime Holdings (PRMSX), which management favors for its growth potential in China and at home. Over the past 15 years, the fund has posted an annualized 9.4% gain while offering a more moderate risk profile than most of its peers.
And while Matthews Pacific Tiger does an excellent job of investing in the Pacific region, there are other corners of the globe it doesn't touch, primarily Latin America or emerging Europe. To cash in on those areas, you'll want a more diversified offering like the T. Rowe Price Emerging Markets Stock. This fund takes a broader view of emerging-markets investing, covering Central and South America, the Asia-Pacific region, Africa, and the Middle East. Manager Gonzalo Pangaro looks for rapidly growing companies with competitive advantages, and he is willing to load up on sector or regional concentrations if he sees significant opportunities.
Right now the portfolio is emphasizing financial stocks and has a slight overweight to Brazilian companies. The most notable are oil giant Petroleo Brasileiro (NYS: PBR) and mining concern Vale (NYS: VALE) , both of which are selling at less-than-average P/Es for their respective industries while still offering significant growth rates. This fund isn't quite as flashy as other emerging-markets offerings, but it is a steady, consistent producer over time.
On the cheap
On the other hand, if you're not a proponent of actively managed funds and would rather have quick and easy emerging-markets exposure at a cheaper price point, exchange-traded funds are probably the way to go. Two of the better options in this space are the Vanguard MSCI Emerging Markets ETF (NYS: VWO) and Schwab Emerging Markets ETF (NYS: SCHE) . Both funds offer broad exposure to developing nations around the globe and come with low annual expenses of 0.20% and 0.25%, respectively.
Please keep in mind that emerging-markets funds or stocks should not completely replace your allocation to more staid developed nations -- in Europe or anywhere else. Nor do you want to overload your portfolio with emerging names; remember that this sector can turn on a dime and experience crushing drops, like the more-than-50% drubbing the MSCI Emerging Markets Index took in 2008. While more aggressive investors may want to devote 15% to 20% of assets to emerging markets, folks near or in retirement should cut back to 5% or less. Emerging markets are a risky lot but, at least in the immediate future, are likely to be a more reliable source of high returns than many other spots around the globe.
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At the time this article was published Amanda Kishis the Fool's resident fund advisor for the Rule Your Retirement investment newsletter. At the time of publication, she did not own any of the funds or companies mentioned herein.Motley Fool newsletter serviceshave recommended buying shares of China Mobile and Petroleo Brasileiro. Tryany of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy.