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#10 in Diversified Emerging Mkts
U.S. News evaluated 202 Diversified Emerging Mkts Funds. Our list highlights the top-rated funds for long-term investors based on the ratings of leading fund industry researchers.
The fund has returned -0.78 percent over the past year, 0.75 percent over the past three years, 19.25 percent over the past five years, and 12.35 percent over the past decade.
|Trailing Returns||Updated 02.28.2014|
|Year to date||-1.8%|
|3 Years (Annualized)||0.7%|
|5 Years (Annualized)||19.3%|
|10 Years (Annualized)||12.4%|
The Eaton Vance Tax-Managed Emerging Markets fund is just as specific as its name suggests. For investors willing to pay a hefty initial investment, its nuanced approach to the developing world might be a broader alternative to the barrage of BRIC-focused emerging market funds that crowd the field.
As of March 05, 2014, the fund has assets totaling almost $3.47 billion invested in 1,637 different holdings. Its portfolio consists of both emerging market and frontier market stocks of all sizes but tilts toward large-cap growth companies.
Unlike most diversified emerging market funds, which often invest more than half their assets in Brazil, Russia, India and China, this fund is invested in more frontier markets than the more-developed nations commonly considered emerging markets. “The main driver of returns in our strategy, historically and currently we believe, is country returns,” said Brian Dillon, the fund’s institutional portfolio manager. Because of this, economies are separated into four tiers based on market liquidity, with the largest share of allocations spread equally among these top tier countries. Lowers tier countries receive smaller weightings.
In addition to its extensive diversification amongst more than 1400 stocks, this fund’s conservative approach is noticeable in its target for country allocations. It aims to park no more than 7 percent of assets in any single country. However, the funds passive role toward regional economic news can be problematic, as when its positions in Kuwait and the UAE were affected by Dubai’s downturn in 2009. So while the fund returned more than 68 percent that year, it trailed its peer average for the first time since its inception in 1998. In relation to its benchmark, the MSCI Emerging Markets Index, this drastically reduces the fund’s exposure to Brazil, Russia, India and China. The fund has returned -0.78 percent over the past year and 0.75 percent over the past three years.
The fund uses a passive approach to stock picking that relies on quantitative models, aims for an abnormally low turnover rate and controls capital distributions in order to keep investors’ tax tabs at a minimum. This last fact, alongside its $50,000 initial minimum investment, means the fund is designed to serve tax-minded high net worth investors in search of relatively conservative exposure to developing markets. The fund has returned 19.25 percent over the past five years and 12.35 percent over the past decade.
Management assigns countries to one of four tiers based on an indidual nation’s market liquidity. Each tier has half the prior tier’s weight, so first tier countries receive 6 percent of the portfolio, second tier receive 3 percent and on down. The investment model also focuses on equally weighting sectors within a country to create diversification. Stocks are then chosen to provide exposure to these economies and sectors, Dillon says. When a country’s allocation grows to fifty percent above its normal weighting — say Russian grows from 6 to 9 percent — the fund begins selling that nation’s holdings down to its original level. That cash is then directed toward the equities of countries that are currently underweight in the portfolio.
“As an asset bubble starts to persist, we will sell into that strength, and the when we’re capturing that gain, we will then take those dollars and put them to work in the most underweight portion of the portfolio. So, i.e., We sell the winners and buy the losers,” Dillon said.
Role in Portfolio
Morningstar gives this fund a specialty role.
The fund is sub-advised by Parametric Portfolio Associates. David Stein and Tom Seto took over management of the firm in March 2007. They’re aided by a team of six portfolio managers. Management takes a hands-off approach to the world economy by deferring to quantitative models built by its managers and analysts. Rather than a country’s economic expectations, metrics measuring each country’s market liquidityare the main focus.
Parametric Tax-Managed Emerging Markets Fund has an expense ratio of 0.96 percent.
The fund invests in emerging and frontier markets, which tend to be more volatile. Its passive approach to investing, in which it disregards financial news and company outlooks, can allow it to stick to economies in crisis.