4 / 5 Stars
4 5 1 1 4
Zacks Investment Research
5 (Strong Sell)
Standard & Poor's
4 / 5 Stars
U.S. News evaluated 201 Diversified Emerging Mkts Funds. Our list highlights the top-rated funds for long-term investors based on the ratings of leading fund industry researchers.
Note: Profile written for different share class.
The fund has returned 2.78 percent over the past year, -0.76 percent over the past three years, 17.02 percent over the past five years, and 11.27 percent over the past decade.
|Trailing Returns||Updated 01.31.2014|
|Year to date||-6.9%|
|3 Years (Annualized)||-0.8%|
|5 Years (Annualized)||17.0%|
|10 Years (Annualized)||11.3%|
Financial advisors and fund managers are fond of saying that you get what you pay for with mutual funds. While there is serious cause to debate that claim, the adage holds true for the Delaware Emerging Markets fund. Although it sports a high expense ratio relative to its peers, this fund has been one of the best performing diversified emerging market funds over the last 10 years.
As of February 05, 2014, the fund has assets totaling almost $2.60 billion invested in 124 different holdings. Its portfolio consists of close to 90 percent foreign stocks and 10 percent U.S. stocks.
Sole manager Liu-Er Chen uses a three-pronged approach to investments. First, he searches for proven franchises. Then he narrows his search by singling out companies in industries growing at least as fast as the U.S. economy. From there, Chen whittles the pool down by choosing tocks he believes are “selling at the largest discount to intrinsic value.” This last criterion generally puts this fund’s picks firmly in the large-cap value category. The fund has returned 2.78 percent over the past year and -0.76 percent over the past three years.
One factor that sets this fund’s strategy apart from its peers is that management invests beyond emerging market stocks. In fact, one third of its portfolio consists of companies from developed countries that do substantial business in emerging markets.
For example: “We have a big position in Yahoo . . . [which] owns 39 percent of Ali Baba Group,” one of the largest internet companies in China and India, Chen said. He believes that in five years, Ali Baba Group will be worth as much Yahoo’s current market value of $19 billion. Chen may add to his roster of U.S. companies with heavy exposure to the emerging markets, since he believes U.S. blue chips are undervalued.
Although the fund’s prospectus gives management a lot of leeway, the fund doesn’t always follow it. The prospectus says that the fund usually invests 80 percent of its assets in emerging markets, but as of the end of 2010, the fund had just 65 percent of its assets in emerging markets. The fund can also invest up to 35 percent of its assets in fixed income, but the fund currently has no exposure to that asset class. There is no minimum limit to the credit ratings of these bonds, and management is permitted to invest as much as it wants in a single country’s economy. However, since taking over the fund in 2006, Chen has only rarely purchased bonds, and when he has, he’s sold them quickly. The fund has returned 17.02 percent over the past five years and 11.27 percent over the past decade.
The Delaware Emerging Markets fund invests nearly all of its assets in stocks. Manager Liu-Er Chen picks stocks by first zeroing in on companies with the best franchises and balance sheets. He then narrows the list by choosing those companies that are in fast-growing industries and, finally, picks the cheapest stocks in that universe. He holds stocks for an average of three years.
Role in Portfolio
Liu-Er Chen has run the fund since September 2006. Before that, he worked for 11 years at Evergreen Investment Management Company, including running its emerging markets growth fund from 1999 until 2006. Before joining the investment industry, Chen worked in the corporate end of pharmaceutical and medical device companies.
Delaware Emerging Markets Fund has an expense ratio of 1.95 percent.
Morningstar says the fund has an overall low risk. By hedging against the U.S. dollar by holding many securities in foreign currencies, the strategy could backfire if the U.S. dollar does not see the inflation that has been widely forecast over the next decade. The fund also has a third of its assets in financial stocks, a bet that could lead to major losses if the emerging markets face a banking crisis.