This Day On The Street
Continue to site
ADVERTISEMENT
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

Top Emerging-Market Small-Cap Funds

NEW YORK ( TheStreet) -- Investors have been pouring into emerging markets, and emerging-market small-caps have been particularly hot. During the past year, the MSCI Emerging Markets small-cap index has returned 26.3%, compared with 14.4% for the S&P 500.

Some emerging-markets mutual funds have done better than the benchmarks. Wasatch Emerging Markets Small Cap (WAEMX) returned 41.2%, while DFA Emerging Markets Small Cap (DEMSX) returned 30.7%.

Have small-caps become too rich? Maybe not. Small-caps sell with a price-to-earnings ratio of 12.3, compared with 14 for emerging-market large-caps, says Laura Geritz, portfolio manager of Wasatch Emerging Markets Small Cap. The S&P 500 has a P/E of 15.5.

The valuations in the emerging markets are especially intriguing because in the U.S. small-caps are more expensive than their large-cap brethren.

Why are emerging-market small-cap stocks so cheap? The emerging markets are still immature in some ways, says Geritz. Not many analysts follow small-caps yet. And when U.S. money managers shop in the emerging markets, they tend to stick with the best-known blue-chips.

Besides being relatively cheap, the small stocks also offer some of the most compelling growth prospects in the emerging markets, says Geritz. She says that the small-cap index is full of the kind of retail and service businesses that are benefiting from the booming growth of consumer spending. In contrast, the MSCI Emerging Markets large-cap benchmark emphasizes banks and energy companies, which are growing at slower rates.

To try small-caps, consider Wasatch Emerging Markets Small Cap, which returned 9.7% annually during the past three years, soaring past the average emerging-markets fund, which lost 2.3%. Wasatch seeks companies that can grow steadily for the next three to five years. Typical holdings have secure niches, solid balance sheets and very high returns on equity. "We want companies that can survive and grow during periods when the economy turns down," says Geritz.

To limit risk, the fund seeks stocks with P/E multiples that are lower than the growth rates. Based on next year's earnings, the portfolio currently has a P/E ratio of 13, a moderate price for companies that should grow at annual rates of more than 20%.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

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

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AAPL $130.16 0.15%
FB $82.47 2.50%
GOOG $540.36 0.22%
TSLA $248.83 0.19%
YHOO $43.21 0.14%

Markets

DOW 18,076.27 +64.33 0.36%
S&P 500 2,114.07 +4.47 0.21%
NASDAQ 5,099.2310 +22.7070 0.45%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs