Emerging-markets funds emerging as investor favorite

With developing economies booming, funds see large increase in net inflows; No. 1 for November

Dec 30, 2010 @ 2:32 pm

By Darla Mercado

Emerging-markets mutual funds recorded the highest net inflows of any fund category in November as economic prospects in the U.S. and Europe continued to languish.

Mutual funds in the diversified-emerging-markets category ranked No. 1 for net flows in November, raking in $4.6 billion that month, according to research from the Financial Research Corp. Year-to-date, flows into the category have reached $48.9 billion, up from $31.7 billion in the year-ago period.

The world-bond and world-allocation categories — Nos. 2 and 3 on the list — have also seen a pickup in inflows during the year. World bonds gained $3.2 billion in net flows last month, bringing their year-to-date flows to $33 billion, up from $20 billion in the year-ago period.

Meanwhile, the world-allocation category gathered $3 billion during November, bringing year-to-date net inflows for 2010 to $19.6 billion — more than double the amount for the comparable period in 2009.

The fixed-income category had been a major seller during 2009 and part of 2010, but now emerging markets are garnering much of that focus, said Veer Virkar, a research analyst at FRC. “Expected returns for emerging markets are much higher versus growth prospects in the U.S. right now,” Mr. Virkar. “It's a function of economic activity in the U.S., as well as the fact that emerging markets are performing.”

International funds have also been the top-selling funds for the month. Vanguard's Total International Stock Index Ticker:(VGTSX) brought in some $2.15 billion in fund flows last month, making it the top gainer for November. Templeton Global Bond Fund Ticker:(TPINX) followed, with $1.53 billion in net flows for November. The iShares Russell 2000 Index Fund Ticker:(IWM) was third on the list, with $1.49 billion in net flows.

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