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How Much Emerging-Markets Exposure Do You Need? (And Do You Already Have It?)

Emerging markets are hot, and here are some benchmarks to ensure you don't go overboard.

Christine Benz 03.01.2014

If you've been keeping an eye on flows into mutual funds for the past few years, you may have observed a curious trend. Even though emerging-markets stock and bond funds have posted weak near-term returns, investors have been flocking to each category. That behavior runs counter to the one we typically observe, as investor dollars typically run away from--not toward--investment types with poor recent returns.

The first step if you're eyeing a position in emerging markets--contrarian or otherwise--is to gauge the extent to which your current holdings are already exposed to these areas. You can see your holdings' ratio of developed-/emerging-markets exposure by clicking on the "Portfolio" tab for individual mutual funds and exchange traded funds when visiting their Quote pages on Morningstar.com. The Markets Classification (% Emerging/% Developed) is toward the bottom of the Portfolio page.

Morningstar's X-Ray functionality doesn't currently depict developed/emerging stock exposure for your whole portfolio (but that's something we'll investigate as a future feature). For now, you could do a back-of-the-envelope calculation by totaling your portfolio's exposure to Latin America and Asia/Australia, but that's a rough view at best. Although Japan gets its own classification, Australia is a developed market, whereas Europe encompasses markets that are developing as well as developed.

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About Author

Christine Benz  Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz and on Facebook.

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