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!

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

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 17,124.67 +72.94 0.43%
S&P 500 1,984.66 +11.03 0.56%
NASDAQ 4,460.3890 +35.6850 0.81%

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