When It Comes to Emerging Markets Funds, Proceed With Caution

This is the second in a series of stories examining the outlook for international funds. Read the first article on European funds here.

Emerging markets funds seem to be ruling the world these days, but investors looking for international exposure need to know that these funds may provide a little too much of la vida loca for their liking.

After a dismal 2000, when the average emerging market fund lost 31.1%, 2001 so far has proven kind to emerging markets funds. With a year-to-date return of 3.57%, the category is the second top-performing group in Morningstar's ranking of international funds. The top performing category is Pacfic/Asia ex. Japan funds with a year-to-date return of 4.60%, while Latin American funds rank third, with a year-to-date return of 2.47%.

Performance of International Stock Funds*
Fund Category	Year-to-Date	One-Year	Three-Year	Five-Year
Pacific/Asia ex-Japan	4.60%	-25.46%	4.39%	-5.55%
Emerging Markets	3.57	-31.26	-3.13	-3.15
Latin America	2.47	-14.68	-1.82	4.54
Pacific/Asia	-1.34	-32.53	3.66	-4.15
Precious Metals	-2.07	-17.94	-9.35	-17.31
International Hybrid	-2.31	-4.30	5.82	5.69
Japan	-5.98	-34.35	5.95	-1.81
World	-6.37	-15.79	6.89	9.72
Foreign	-7.00	-21.40	6.02	7.34
Europe	-8.58	-20.59	6.00	11.55
*Data through Feb. 22, 2001. Source: Morningstar

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