Volatility in EM funds is both appealing, off-putting, advisers say

By Aleesia Forni

Columbus, Ohio, Oct. 25 - iShares, Inc. launched the Emerging Markets Local Currency Bond fund last week, which the company believes will provide investors with diversified access to the broad investable world of local emerging market debt, according to a press release by parent company BlackRock, Inc.

"If you're using emerging markets, what you're really trying to do is to not necessarily invest long-term, but speculate on movements in a market or on certain types of events which may be occurring," according to Malcolm A. Makin, president of Westerly, R.I.-based Professional Planning Group.

Makin continued to say that with the right timing and portfolio manager, a benefit of this type of fund would allow investors to "take advantage of opportunities that you might not otherwise be able to take advantage of in a more broad or widely diversified allocated portfolio."

Makin said that emerging market areas "typically have higher growth" than other "larger, more stable economies."

As opposed to China-specific or Brazil-specific funds, investors may in fact be able to have assets which are non-correlated, and these assets "may be able to improve performance while reducing the risk," Makin said.

Makin said emerging market funds would not be ideal for those planning to hold them for a long period of time because of the volatility.

"There is a hope that higher growth [and] that higher volatility will perform well for you," Makin told Prospect News.

However, this higher volatility is also a downfall of these types of funds.

Makin said his firm "typically wouldn't use a fund like this."

A large portion of Makin's clients are retired, and his financial planning and investment advisory firm looks for "long-term growth and income, so a fund of this nature just might be too volatile for our purpose."

"On the other hand, if you have a higher amount of capital or a client who's a bit more aggressive and willing to take on some risk, emerging markets are certainly a good candidate to look at and do that," Makin said.

"It really is a timing issue," Makin said of emerging market funds. "You're sort of moving. You're following a landscape as it develops in front of you, hoping to get it right."

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