Morningstar Researcher: Don't Chase 2009's Emerging Market Winners
Investors should fight the temptation to buy into the best performing emerging markets of 2009 and look to broader global funds to take advantage of the growth potential, Christopher Traulsen, director of fund research from Morningstar UK, told CNBC Wednesday.
"I really worry that people will see some of the hot performance numbers from last year on the very specific regional funds and try and chase it—and we think that's the wrong way to go," Traulsen said.
Russian funds were the best performing category in 2009; Brazil, Latin America and Norway also did very well, Traulsen said. The best performing sectors of last year were commodities, natural resources, precious metals and energy, he added.
"Emerging markets were the place to be [in 2009]. It was really the polar opposite of 2008. Where risk didn't pay in '08, it did pay in '09," Traulsen said.
Investors shouldn't tie themselves down to specific regions or asset classes when selecting funds, according to Traulsen.
"We think investors are much better served by going with broader global emerging markets offerings for long-term diversification" he said.
Three funds which Morningstar rates as "elite":
- First State Global Emerging Markets
- Comgest Emerging Markets Growth
- Skagen Kon Tiki
"These are all three broad global funds. You aren't going to get nicked if Russia goes into the tank next year, because they have the freedom to go into other markets. We think that's really the way to go for investors," he said.
Diversification may offer some protection against risk, but many market investors point out that it gives investors exposure to both the good and bad performing assets.