Emerging Markets Fund Inflows Break Records in 2009

MSCI Emerging + Frontier Markets Index (from Jan 1st 2009)

No one should be puzzled about the fact that, according to EPFR Global, emerging markets mutual funds raised $80 billion in 2009, shattering the previous annual record of $25 billion.

When you think about it, emerging markets are the perfect sector for mutual fund families to market…American retail investors do not have boots on the ground in these far-flung nations, they don’t speak the language in which these companies report earnings or hold conference calls, nor do they pretend to understand the vagaries of these markets – from local customs to seasonal quirks to fashion trends to sentiment.

Emerging markets are one of the few areas where a majority of investors prefer a human analyst team at the wheel as opposed to an index (read: ETF) approach because of these unquantifiable dynamics.  This makes the investment theme a natural for well-positioned fund families to cater to.

These fund families know that investors have decided the following:

“If General Electric and Bank of America and all the other so-called blue chips are capable of 70% up-and-down swings, I might as well invest where the growth is.  I can deal with volatility as long as the potential reward is big, too.”

“I only have X amount that I’m comfortable investing in equities, I might as well put it in the hottest sectors/stocks.”

“I lost so much money in the market in 2008 that the only way to make it back was to buy stuff that could double or triple.”

“I want emerging markets, but I can’t exactly research and pick stocks that trade on the local exchanges, so why not let a mutual fund manager with analysts and experience in country do the research for me?”

These are oversimplifications to be sure, but with the MSCI Emerging Markets Index gaining 74.5% last year, people have decided not to split hairs.

The New York Times attempts to gauge the emerging market rush below:

How to Gauge the Rush to Emerging Markets (NYT)