This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Emerging-Market Funds Enter Danger Zone

NEW YORK (TheStreet) -- Emerging-market funds have been on fire. Van Eck Emerging Markets (GBFAX) has returned 108% this year, and Dreyfus Emerging Asia (DEAAX) is up 121%. Plenty of investors have been piling into emerging funds. But before you write a check, consider the fate of other high-flying funds. In nearly every case in the past, they have crashed soon after returning 100% in a year.

An episode of triple-digit returns occurred two years ago. With investors keen on the outlook for China, some Asian funds doubled. During the 12 months ending in October 2007, Dreyfus Greater China (DPCAX) soared 148%, while Aberdeen China Opportunities (GOPAX) jumped 145%. Then, with the credit crisis beginning to unfold, Asian stocks fell. For the year ending in October 2008, Dreyfus Greater China lost 72% of its value, and Aberdeen tumbled 64%.

Among the most dramatic market performances ever came in 1999 when 126 funds returned more than 100% for the year. Within months, nearly all the winners fell off a cliff.

Considering that history, should you stay away from red-hot emerging-markets funds altogether? Not necessarily. While emerging stocks could be rough for the next year, long-term investors have good reasons to begin gradually buying. By many measures, the outlook for emerging economies looks stronger than ever.

In the past, financial advisers viewed emerging-market stocks as shaky investments. Many countries in Latin America and Asia were plagued with heavy debt loads and sketchy financial regulation. In light of the extra risk, the price-to-earnings ratios of emerging shares were always lower than the multiple that investors paid for the S&P 500.

1 of 4

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,051.73 -48.45 -0.28%
S&P 500 1,973.63 -4.59 -0.23%
NASDAQ 4,424.7040 -7.4420 -0.17%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs