February 10, 2017

Emerging Markets Funds Bounce Back From Post-Election Slump

by Patrick Keon

Emerging markets funds (including both mutual funds and exchange-traded funds [ETFs]) were one of the groups hardest hit by the surprise U.S. presidential election result. On average the group lost 3.84% from the election through the end of 2016. It suffered net outflows of $3.5 billion over the last two months of the year, reversing the trend of five consecutive monthly net inflows during which it grew its coffers by $17.3 billion. There were several reasons for this mini-slump: a stronger U.S. dollar, an environment of rising interest rates, and newly elected President Trump’s threat of tariffs on imports. As the market started to believe the majority of the risk was already priced into the sector, investor sentiment for emerging markets turned with the new year; the group is now up 7.06% on average, and it has taken in over $5.8 billion of net new money for the year to date.

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From a fund-flows perspective three products have led the charge in 2017. iShares Core MSCI Emerging Markets ETF (IEMG), Vanguard Emerging Markets Stock Index Fund (VEMAX), and Lazard Emerging Markets Equity Portfolio (LZEMX) have grown their coffers by $1.7 billion, $1.4 billion, and $721 million, respectively, for the year to date. Interestingly, while the emerging markets group took its lumps post-election, VEMAX (+$1.5 billion) and IEMG (+$981 million) still managed to record significant net inflows. The largest net outflows by far during the post-election period belonged to iShares MSCI Emerging Markets ETF (EEM), which saw investors pull out almost $3.7 billion. Other funds that suffered significant net outflows after the election were T. Rowe Price Emerging Markets Stock Fund (PRMSX, -$645 million) and iShares Edge MSCI Minimum Volatility Emerging Markets ETF (EEMV, -$517 million).