(Barron's) The Best Mutual Funds for Emerging Markets

The Best Mutual Funds for Emerging Markets

After a rocky 2013, a number of funds focused on the developing world look attractive. One problem: finding a manager with a long track record.

Emerging markets, which had a disappointing 2013, were a big theme of the Barron's Roundtable this year. While our participants may be divided as to the near-term prospects for the world's developing nations, everyone agrees that investors need to participate in the long term.

Based on the $39 billion that went into diversified (i.e., not country-specific) emerging-markets funds last year, investors seem to agree. But that enthusiasm created an unusual problem: Ten funds, including some of the category's largest and best-performing offerings, closed to new investors last year.

That's particularly problematic, given that the entire category has fewer than 200 funds (198, to be exact, according to Morningstar), and 83 of them don't even have a three-year track record. That severely limits the universe of experienced managers with proven records—and active management is arguably the best way to go when investing in emerging markets. Regular readers know that I'm often a proponent of indexing, and it's unlikely you'll go wrong over the long-term with an indexing strategy. If that's your preferred route, the broadest emerging-markets index ETF is the $38 billion iShares MSCI Emerging Markets (ticker: EEM), though its annual fee of 0.67% makes it pretty pricey for an index ETF.

A good manager can take advantage of the anomalies and inefficiencies rife in the emerging markets, navigating around China's economic slowdown, Brazil's troubled politics, and Russia's stagflation. Index investors get a disproportionately large helping of these countries; the MSCI index has 20% in China and 11% in Brazil. Plus, indexes tend to disproportionately favor each nation's largest companies, most of which are focused on natural resources and also tend to be partially state-owned. The MSCI index has half its portfolio in giant stocks such as Russia's Gazprom, Brazil's Petroleo Brasileiro, better known as Petrobras, and China's biggest producer of crude oil and natural gas, CNOOC . These companies are subject to price controls and other government influence that is geared toward economic policy and not corporate growth.

While picking a good emerging-markets fund might be a bit tougher these days, it's not impossible. Harding Loevner Emerging Markets (HLEMX) flies a bit under the radar, but this $2 billion fund packs quite a punch. It held up well last year, its 4.2% gain puts it in the top 20% of emerging-market funds, and it's handily beaten the MSCI index over five, 10, and 15 years. Its value discipline helps in downturns, but doesn't hinder in bull markets—the fund gained five percentage points more than the group norm of 18% in 2012, says Morningstar analyst Samuel Rocco.

Thornburg Developing World (THDAX) is a relatively new entrant, having been launched at the end of 2009, but it's had an impressive showing, thus far. The $2 billion fund has a big stake in consumer-oriented stocks; top holdings include Galaxy Entertainment, a resort and casino operator in Macau. The fund's go-anywhere approach means it can invest in companies of any size, in any country, which helped propel its 2013 16% return, which beat 96% of its peers.

An interesting alternative for investors who want to focus exclusively on the consumer: The EGShares Emerging Markets Consumer ETF (ECON) invests in 30 large consumer-driven companies, such as South Africa's multinational media company Naspers, Brazilian brewer AmBev, and Russian convenience-store and grocery chain OJSC Magnit. Almost 40% of its assets are in Latin America, 35% are in Asia, and 20% in Africa and the Middle East.

CHINA IS, OF COURSE, the biggest powerhouse in the emerging markets. But making a specific bet on a troubled nation may not be the best idea. Regional funds provide a more targeted approach with less risk, particularly in the hands of the experts behind Matthews Asian Growth & Income (MACSX), a $4.3 billion fund that has almost 30% of its assets in emerging Asia. The fund uses convertible bonds and preferred stock to provide most of the income—it yields 2.42%—and to tone down the volatility of its more growth-oriented stock picks, such as hospitality company Genting Malaysia .

Another good move, especially for investors more skeptical of the near-term prospect in emerging markets, is $23 billion American Funds New World (NEWFX). Though focused on emerging markets, the fund also invests in developed-market companies, so long as they get at least 20% of their revenue from business in the developing world. Right now, it has 59% of its assets in these multinationals, considerably higher than the 38% it's averaged in the past decade, according to Morningstar analyst Kathryn Spica. It can also invest up to 25% in emerging-market debt; its current stake is a more typical 11%, though that's considerable higher than the category's average of 3%. It has a 0.95% yield and returned 10% in 2013, beating 90% of peers. The fund is consistently at the top of its category.

(BFW) European Banks Lack Up to EU767b Equity Ahead of ECB Test: Study

European Banks Lack Up to EU767b Equity Ahead of ECB Test: Study
2014-01-18 13:35:11.687 GMT


By Nicholas Brautlecht
     Jan. 18 (Bloomberg) -- Banks have capital shortfall of
EU509b-EU767b if 7% capital ratio, study by academics at
European School of Management and Technology in Berlin and New
York University finds.
  * French banks show biggest gap of EU285b
  * German banks have second-biggest shortfall with as much as
    EU199b, though “they benefit from a stronger domestic
    economy
with a higher GDP and capacity for public backstops”
  * Spanish banks’ shortfall at EU92b, Italian banks’ at EU45b;
    both countries account for about a third of total shortfall
    after write-downs: study
• NOTE: Sascha Steffen, professor at European School of
Management and Technology in Berlin, Viral Acharya of New York
University examined 109 of 124 ECB stress test candidates in
study
  * NOTE: European Banks Lack Up to EU770b in Equity,
    Sueddeutsche Says
For Related News and Information:
First Word scrolling panel: FIRST<GO>
First Word newswire: NH BFW<GO>

To contact the reporter on this story:
Nicholas Brautlecht in Hamburg at +49-40-31112-260 or
nbrautlecht@bloomberg.net

To contact the editor responsible for this story:
Angela Cullen at +49-69-92041-158 or
acullen8@bloomberg.net

WSJ:Dropbox raides $250m at $10b valuation

Dropbox Raises About $250 Million at $10 Billion Valuation BlackRock Is Leading the Deal Alongside Previous Backers

Dropbox Inc. has closed on about $250 million in a funding round that values the online-storage provider at close to $10 billion, according to two people familiar with the deal. A BlackRock Inc. investment fund is leading the deal, which also includes previous backers, said one of these people, who declined to provide more detail. Dropbox wasn't immediately available to comment. At $10 billion, Dropbox is one of the most highly valued companies backed by venture capitalists. The company's valuation has more than doubled since late 2011, when investors valued the San Francisco-based company at $4 billion. The company also got a higher price than expected when it approached investors as recently as November. Dropbox raised $250 million in its 2011 financing from Goldman Sachs and venture-capital firms including Sequoia Capital, Index Ventures and Accel Partners. The Wall Street Journal previously reported that Dropbox had expected sales of more than $200 million in 2013. The company made $116 million in sales in 2012, according to people familiar with the company's financials, more than doubling its $46 million in revenue in 2011. The year before, it nearly quadrupled sales from $12 million.

>>>Weekly Update

Weekly Market Update: Earnings Season Off to a Weak Start

US equity markets were stuck in neutral for a second consecutive week. Mixed earnings from the big US banks and other corporates provided broader markets with no real catalysts. In Europe, the DAX hit another all-time high on Wednesday as the ECB clarified its positions on bank sovereign bond holdings and capital requirements under the AQR stress tests and Eurozone trade data. The World Bank raised its 2014 global GDP growth forecast to 3.2% from 3.0% prior, the first increase in global GDP projections in three years. On the data front, US December housing starts fell 9.8% y/y following a surge in November. The decline was certainly striking, but analysts like to point out that December's rate was still 2013's third highest rate, in a month of unseasonably cold weather. For the week, the DJIA edged up 0.1%, the S&P500 lost 0.2% and the Nasdaq gained 0.5%.

- December inflation reports out of the US and the eurozone highlighted the growing gap in economic performance between the two regions. In the Eurozone, December annualized CPI dropped to 0.8% from 0.9% in November, while in the US the annualized rate rose to 1.5% from 1.2% in November, and US core CPI was steady at 1.7%. The yield spread between US and German 10-year debt remains pretty steady around 1.0%, with yields on 10-year bund closing out the week around six-week lows at 1.752% compared to a 2.825% yield on the 10-year UST. In a speech on Monday, ECB President Draghi claimed that deflation is not broad based in the euro zone and explained the phenomenon as a consequence of "necessary adjustments" in some regions. ECB governor Weidmann said deflation risks in euro zone were "limited."

- In China, the PBoC has now held off on conducting open market operations for a week and a half. One-week Shibor rates pushed out to two-week highs as investors braced for the release of Q4 and 2013 GDP on Monday, January 20th. The central bank again urged lenders to strengthen liquidity management and set a reasonable pace on lending, even as reports said that the top four state banks accelerated new lending in January, handing over 320 billion yuan in the first 12 days of the month, compared to 270 billion in the same period a year ago.

- The big five US banking giants all reported December-quarter results this week. JPMorgan and Goldman Sachs disclosed pretty tepid results. Profits at JPMorgan were hampered by huge legal fees and the bank's total revenue fell 1% to $24.1 billion. Goldman's profits slumped 19% y/y, pulled down by a 15% decline in revenue from bonds, currencies and commodities trading. In contrast, Morgan Stanley's ongoing shift from trading to wealth management is proceeding very well, with revenue up comfortably y/y. Bank of America and Citigroup had very strong quarters, with BoA's profits up five times over last year and Citi's profits double the year-ago figure. Note that the recent sluggishness in housing markets were reflected in bank metrics: BoA's mortgage originations fell 46% y/y.

- The DJIA was volatile this week as several components reported mixed results. General Electric offered an inline fourth-quarter earnings report, with its FY14 outlook left unchanged. The company's profits were up 20% y/y, attributed mostly to big gains at the firm's newly important oil and gas unit. Intel reported Q4 earnings just shy of consensus, and the first quarter revenue guidance was in line. Intel saw strength in the data center, held PC revenue flat and said it saw back-half growth in tablets. American Express shares shot up four percent on Friday, though its headline EPS and sales were a little below target, it pointed to a healthy rise in card member spending.

- On Friday, UPS cut its FY14 guidance, blaming higher costs incurred in deploying resources to deal with a heavier-than-expected holiday shipping surge, including an "unprecedented" level of last-minute online shopping. Recall that just after Christmas, both Amazon and UPS said they would offer refunds to customers who did not receive orders on time. More than one analyst has connected weak physical retail sales with the surging levels of online buying seen this year.

- Shares of Best Buy fell more than 30% this week after the firm disclosed its holiday season comps fell 0.8% y/y. The firm touted its increase in market share, which came via heavy discounting and lower margins. It expects its Q4 operating margin to be 175 to 185 basis points lower than the same period last year.

- Royal Dutch Shell released a severe profit warning late in the week, advising that Q4 earnings would be around $2.2 billion versus $7.3 billion a year ago and full-year earnings would be down almost 40% y/y. The dire outlook was based on upstream earnings down 45% y/y and downstream earnings down 58% y/y. Shell cited weak refining margins in Asia and Europe, high maintenance expenses and a deteriorating security situation in Nigeria.

- The Detroit Auto Show was under way this week, providing a stage for industry names to talk about the upcoming year. GM offered an FY14 outlook that was more or less flat y/y, with North America industry volumes around 16-16.5M units and global industry sales about +2% to above 85M units. Note also that GM said it would resume paying dividends - set at $0.30/share for a 3.0% yield - for the first time in five years. Major auto parts names American Axle and Magna International offered in-line forecasts for FY14.

- FX trading saw the greenback bounce back from the lows prompted by last week's disappointing US December jobs report. After Friday's big dollar sell-off, Fed speakers, commentators and analysts were virtually unanimous in asserting that the poor December jobs data was a one-off and would not interrupt the Fed's plans to continue tapering QE asset buys. USD/JPY dropped briefly below 102.90 earlier in the week and then crept higher to briefly pop above 104.90, where the pair had been before the jobs report. EUR/USD had reached for 1.3700 after the jobs report last week, but by Friday the pair was looking to test 1.3500. After a brief respite from the jobs data, emerging market currencies were right back to getting hammered as the dollar strengthened.

>>>US Close Dow+0,25% S&P-0,39% Nasdaq-0,50%

The broader market ended the week on a down note, undercut by a spate of uninspiring earnings results and guidance from some widely-held companies that put a damper on the bullish sentiment seen in the middle of the week.

There were some buying efforts on Friday that controlled the fallout, but generally speaking there wasn't a lot of conviction among buyers with the exception of some specific stocks. Those exceptions tended to reside in the price-weighted Dow Jones Industrial Average, which outperformed the other major indices on Friday.

American Express (AXP 90.97, +3.19), which came up shy of consensus earnings estimates but spotlighted encouraging card member spending, was instrumental in the Dow's outperformance. It joined with Visa (V 232.18,+10.41) -- the highest-priced stock in the Dow -- to effectively account for all of the Dow's gains. Remarkably, 21 out of the 30 Dow components ended lower on Friday.

Intel (INTC 25.85, -0.69) and General Electric (GE 26.58, -0.62) were among the Dow laggards. Both companies reported their results for the fourth quarter, yet neither wowed investors. Intel missed by a penny and said it expected FY14 revenues to be approximately flat. GE was in-line with expectations and said things were improving, albeit in a mixed environment.

Morgan Stanley (MS 33.40, +1.40), which beat by eight cents, and Schlumberger (SLB 90.21, +1.60), which beat by two cents, enjoyed positive outings that provided a measure of support for the broader market and their respective sectors.

Be that as it may, every S&P 500 sector closed in the red on Friday. The energy sector (-0.05%) was the relative strength leader while the consumer staples sector (-0.8%) was the biggest laggard. The latter was afflicted by a big earnings warning out of Elizabeth Arden (RDEN 27.96, -6.54).

Other notable companies warning they expect to fall short of earnings expectations included Con-way (CNW 40.59, -0.81), Royal Dutch Shell (RDS.a 70.57, -1.17), and UPS (UPS 99.91, -0.58). The warning from UPS drew a lot of attention, yet the company came back nicely from a loss of more than three points during the day as investors seemed to warm to the notion that its shortfall was tied to the bad weather and the operational challenges of meeting increased demand during the holiday selling period.

The earnings news was the focal point throughout the day. There were some early economic releases, but they didn't have much bearing on today's proceedings. Overall, the economic news was good enough not to create any newfound concerns about the economic recovery.

* December housing starts slipped 9.8% to an annualized rate of 999,000units, but the two-month average for starts was the highest since March 2008. * Industrial production jumped 0.3%, which was the fifth consecutive month industrial production increased. * The preliminary reading for the University of Michigan Consumer Sentiment report for January dipped to 80.4 from 82.5, but the downturn wasn't enough to cause any real concerns 

Today was an options expiration day, so volume was heavier than usual with 880 mln shares having traded at the NYSE versus 641 mln on Thursday.

For the week, the S&P 500 declined 0.2%, the Dow Jones Industrial Average gained 0.1%, and the Nasdaq Composite increased 0.6%.

As a reminder, the stock and bond markets will be closed on Monday in observance of Martin Luther King, Jr. Day.

* Dow Jones Industrial Average -0.7% YTD * S&P 500 -0.5% YTD * Nasdaq Composite +0.5% YTD * Russell 2000 +0.4% YTD

>>> US Notable Movers

Large Cap Gainers

* ILMN (135.27 +7.99%): Co outlined plans for expansion and previewed new products at investor day; target raised to $150 from $135 at Mizho; target raised to $190 from $120 at J.P. Morgan * TWTR (63.68 +5.13%): Seeing reports that co plans to partner with startup Stripe for e-commerce; initiated with a Buy at Stifel, target $75 * AXP (91.83 +4.61%): Reported Q4 EPS of $1.21 vs $1.25 estimate, revs rose 5.0% yoy to $8.55 bln vs $8.57 bln estimate; upgraded at Susquehanna and Buckingham Research

Large Cap Losers

* SLM (24.78 -8.70%): Missed quarterly EPS by $0.12 ($0.61 vs $0.73 estimate); loan originations rose 2% to $524 mln * COF (73.01 -4.49%): Missed quarterly EPS by $0.12 ($1.45 vs $1.57 estimate), revs fell 1.4% yoy to $5.54 bln vs $5.46 bln estimate; downgraded to Neutral from Positive at Susquehanna * INTC (25.64 -3.41%): Missed quarterly EPS by $0.01 ($0.51 vs $0.52 estimate), revs rose 2.6% yoy to $13.83 bln vs $13.74 bln estimate; reaffirmed FY14 revs ~flat yoy at $52.7 bln vs $53.19 bln estimate; sees Q1 revs of $12.3-13.3 bln vs $12.78 bln estimate

Mid Cap Gainers

* EA (24.05 +11.65%): NPD Group reported sale of new games at retail shops fell 17% to $1.31 bln; initiated with a Buy at CRT Capital,target $26 * SWKS (30.93 +8.07%): Beat quarterly EPS by $0.01 ($0.67 ex items vs$0.66 estimate), revs rose 11.3 % yoy to $505 mln vs $500 mln estimate; sees Q2 EPS of $0.59 ex items vs $0.57 estimate, revs of ~$470 mln v $460.50 mln estimate; target raised at Needham, Northland, Brean Capital, and Canaccord Genuity * AU (13.63 +6.57%): Strength in gold miners: KGC, GFI, EGO also higher seeing reports that gold miners were mentioned positively by J.P.Morgan analysts

Mid Cap Losers

* NUS (77.62 -8.47%): Continued weakness on news that China will investigate recent accusations that the company is operating an illegal pyramid scheme; downgraded to Neutral from Buy at BofA/Merrill * SINA (75.63 -6.14%): Downgraded to Hold from Buy at Jefferies * BBY (25.21 -6.04%): Continued weakness on disappointing domestic holiday comparable sales and lowering of Q4 profit guidance; downgraded to Neutral from Buy at Goldman; mentioned cautiously at Barron's; target lowered to $33 from $50 at Telsey Advisory Group

>>> Turkey - could move on that news

TRY - Turkey has frozen the assets of the main opposition Republican peoples party candidate for mayor of Istanbul..

Think we see USDTRY go further bid on this.. ahead of the weekend this will spark anti Erdogan protests i am sure

WSJ carrying a story saying "Russia ready to float Ruble nex

WSJ carrying a story saying "Russia ready to float Ruble next year regardless of rate"

Stress tests (they say) show banks can handle devaluation of up to 30%

{http://online.wsj.com/news/articles/SB10001424052702304419104579326441407494108?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702304419104579326441407494108.html}

>>> Fitch: France labor tax cuts may be credit suportive

Fitch: France labor tax cuts may be credit suportive
- President Hollande's announcement of new labour tax cuts and his public commitment to press ahead with structural economic reforms is potentially supportive of competitiveness and medium-term growth in France, although assessing their likely impact will require further clarity on details and implementation, Fitch Ratings says. Furthermore, it is not yet clear how the proposed tax cuts would fit within current fiscal plans.
- The 'responsibility pact' to cut labour costs for companies as they hire more workers was the most significant point of the 14 January speech. The idea is to phase out employer family welfare payroll contributions by 2017, saving French companies EUR30bn a year (or 1.5% of 2012 GDP), according to government estimates. Further details will be given in the spring of 2014, with a scheduled vote of confidence in parliament on the government in the context of this new 'responsibility pact'. Fitch believes the risk of the government being outvoted is small.
- The move to cut labour costs follows a tax rebate for companies, announced in 2012, is worth EUR20bn to firms from 2015 onward. Cutting non-wage labour costs would help improve competitiveness and, to the extent it adds to medium-term growth prospects, support the AA+/Stable sovereign rating, which we affirmed in December. French firms have some of the highest non-wage labour costs in the EU and relatively low profit margins.
- However, while this week's announcement is another step towards addressing structural economic challenges, it is unlikely on its own to fully offset the risks associated with the relatively slow pace of structural reform. The OECD said in a government-commissioned report in November that recent reforms were welcome, but that "France has recorded no significant improvement" in its external competitiveness since the crisis.