What are emerging market equity funds?

Emerging market equity funds offer investors access to countries and regions that are undergoing economic transition. While there are many ways to define emerging markets (EM), the term typically refers to the two dozen countries that are part of the MSCI Emerging Market index. Just as mutual funds and exchange-traded funds (ETFs) vary greatly in focus and strategy, so do EM equity funds.

BlackRock offers investors broad EM exposure and regionally focused strategies via our actively managed mutual funds. BlackRock and iShares ETFs that range from globally diversified strategies, such as the iShares MSCI Emerging Markets ETF, to funds that focus on specific regions like Latin America and countries like China and India.

What are the potential benefits of emerging market equity investing?

Emerging market equity investing offers many potential benefits, including improved global diversification and the opportunity to access growing economies and undervalued securities.

  • Diversification: International diversification is one way to possibly reduce your overall volatility. EM equity funds can help you take this a step further by investing in markets that don't move in sync with each other.
  • Opportunity: One of the biggest potential benefits of EM equity funds is the potential to improve your portfolio's overall long-term returns. According to the International Monetary Fund, EMs and developing economies recently accounted for nearly 80% of global economic growth. That share is increasing as infrastructure improves and demand for goods and services from these regions increases.
  • Valuation: While companies in developed markets already have valuation factored into the price of their stock, those in EMs often don't. This creates potential for active fund managers to identify stocks that are trading at inexpensive valuations relative to their growth outlooks.

Why choose BlackRock emerging market equity funds?

As the world's largest asset manager, we use our size to our investors' advantage. BlackRock emerging market equity mutual funds draw on our depth of research and breadth of resources. Our research analysts and portfolio managers combine a global view with local expertise to identify investment opportunities and mitigate portfolio risk.

And while our mutual funds offer the potential benefit of active management, our iShares ETFs offer many options for emerging EM investors as well. A leading ETF provider since 1997, iShares is one of the most respected names in the industry with more than 800 ETFs globally and $1.5 trillion in assets under management.1 Clients around the world trust iShares to build the foundations of their portfolios, meet specific investment goals and implement market views.

Whether you're looking for a broadly diversified index fund or more targeted exposure to a region or country, BlackRock has many different options to choose from.

What are the different types of emerging market equity funds?

Once a niche asset, EM equity funds have steadily evolved to include different areas of focus and accommodate various investment styles. For many investors, the decision starts with whether to take an active or an indexed approach to investing in EM equities.

  • Active EM equity funds. These funds draw on market expertise and stock research to identify equities that offer potential for above-market returns. Proponents of active investing note that the inefficiencies of EM offer advantages to stock pickers who can spot them while sidestepping risks.
  • iShares EMETFs. Index strategies, such as those offered through iShares ETFs, aim to mimic various indexes, from the widely followed MSCI Emerging Market Index to those tied to specific regions and countries. One advantage of ETFs is low fees.
  • Global region- or country-specific funds. While many funds shop the globe for EM equities that best fit their objectives, others home in on specific regions or individual countries.

Most individual investors, whether using active or ETF strategies, tend to get their EM exposure via more diversified portfolios to help mitigate risk. That said, regional funds and country-specific funds or ETFs are ways for investors to act on a specific market view or target the parts of the world that interest them most.

As with any mutual fund or ETF, EM funds can be further broken out by investment style (value or growth) and market capitalization.

How do BlackRock emerging market equity funds compare to others?

Emerging market ETFs make it possible to tap into the diversification and performance benefits of EM in the way that best suits your needs. In addition to actively managed emerging market mutual funds and broadly diversified ETFs, we offer a range of solutions, including funds that seek to reduce risk, mitigate currency risk and pinpoint specific markets.

The world of EMs is constantly in flux. One constant is BlackRock's commitment to providing investors with EM expertise, across many different market cycles, regions and industries.

What are some risks associated with emerging market equity funds?

As part of a long-term strategy, EM equity funds offer investors the potential for greater returns than they might get if they invest exclusively in developed markets. Of course, where there's the possibility of additional return, there's the possibility of additional risk.

EM equity funds may be prone to more volatility than funds that focus on developed countries. These markets are typically smaller and often more vulnerable to political shifts, commodity price swings and changes in monetary policy, among other risks.

Many EM funds also carry currency risk — that is, the value of their holdings vary not just by increasing or decreasing security prices, but by the value of their currencies relative to the dollar. It's important to weigh the pros and cons of investing in an EM equity fund that hedges currency risk, versus investing in one that offers currency exposure.

EM equity funds misunderstandings

Perhaps one of the more common sources of misunderstanding is what constitutes “emerging." At a basic level, countries that fall into this category are moving from a closed economy to a market-based one, but the opportunities and risks therein can vary greatly.

For example, some countries, such as Poland and Hungary, are considered emerging because they are undergoing political transition. In others, such as China, improving infrastructure or changing demographics are the defining factors.

A second common myth is that EM equity funds carry high expenses. While many do have slightly higher expense ratios than their developed-market peers — a reflection of the higher cost of investing in these markets — that is not always the case.

Considerations for emerging market equity investing

As with any investment, it's important to think about how an EM equity fund fits into your overall portfolio. Specifically, be sure your allocation to equity funds fits your investment timeframe and risk tolerance.

Also consider what EM exposure, if any, you are already getting from other investments. For example, many global funds include EM equities.

Similarly, many large companies based in developed markets derive a significant portion of their revenue from EMs. Take a look at your portfolio as a whole to make sure your total exposure is in line with your investment objectives.

The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted.