These funds, which invest in markets such as Brazil, Russia, and China, have returned 8.8% over the last year, significantly outperforming the S&P 500, which has sunk by 14.8%.
Still, low risk appetite among investors who have been burned by crises in Argentina and Turkey in recent months, and a five-year annual return of -5%, have kept prices attractive.
In recent years investors fled emerging markets in droves over concerns on corporate governance issues and accounting standards, but the environment is slowly becoming more supportive for long term investments in this asset class as the economy starts to heal and emerging markets take steps towards market reform and transparency, according to Morningstar.
Recently, the giant California Public Employees Retirement System announced plans to re-enter the Philippine equity market, citing strides in market reform and transparency (see Philippines Back on CalPERS List ).
Since emerging market funds have shown double the volatility of the S&P 500, investors should remain committed for the long haul and ride out the risks of political and economic turmoil, currency fluctuations, and illiquid markets, analysts from Morningstar note.