NEW YORK (CNNfn) - The Russian crisis. Devaluation in Latin America. Plunging commodity prices. Fidelity fund manager John Carlson has weathered it all in recent years -- but lately he's riding high on performance charts.
Emerging markets bond funds such as Carlson's Fidelity New Markets Income Fund have delivered some of the best returns this year, according to figures from fund-tracker Morningstar.
"The market got way oversold, so a lot of those things reversed themselves," Carlson said about the improving outlook. "And a strong U.S. dollar and strong U.S. economy have provided a backdrop for global growth."
Emerging markets bond funds earned 4.54 percent for 2000 through Feb. 29, even beating out large-cap growth funds, which gained 3.82 percent, Morningstar said. It was the ninth-best performing category.
Fidelity New Markets Income Fund, with $235 million in assets, is up 5.59 percent year to date as of Feb. 24, Fidelity said.
Still, emerging markets bond funds are so risky that many fund pros will give you stern warnings about them. Kunal Kapoor, an analyst at Morningstar, said he wouldn't recommend them.
The Fidelity fund, for example, earned 36.7 percent in 1999, lost 23.8 percent in 1998, and gained 17.5 percent in 1997, Morningstar said.
"In this category you have swings of 30 to 40 percent in one quarter," Kapoor said.
There are about 21 emerging markets bond funds tracked by Morningstar. The funds invest in U.S. dollar-denominated debt, mostly in Latin American countries such as Argentina, Brazil and Mexico, Kapoor said.
"I'm not sure the funds have proven themselves," Kapoor said. "I'd really be hesitant for anybody to take a look at them."
Still, for people determined to invest in the sector, Kapoor said Carlson does a good job of keeping his portfolio diversified.
Carlson acknowledged that the fund isn't for everyone.
"I believe this fund is only suitable for people who want to participate in global growth -- the emerging country growth story -- who have a long time horizon," Carlson said. By long term, he means more than three years. Investors should also be able to withstand big daily swings.
"Then, and only then, they should put a small part of their portfolio in this," Carlson said.
A major reason for the turnaround has been a rebound in oil prices and commodities in general, Carlson said. Oil prices are at their highest level since the Persian Gulf War nine years ago. Many emerging markets are oil or commodities producers, Carlson said.
Carlson said his decision to overweight oil-producing countries such as Mexico, Venezuela and Russia helped boost his returns in 1999.
"I also underweighted countries where I thought the valuations were too tight, like Poland, Panama and South Korea," he said.
The fund now has about two-thirds of its assets in Latin America, including Brazil, Argentina and Mexico. The fund also has five to 10 percent in Asia and the Middle East, and about 20 percent in Eastern Europe.
As far as the outlook for 2000, Carlson refuses to use the word "optimistic." But he is "constructive" for the year, he said.
"One can never be complacent in emerging markets," Carlson said. "These are nascent economies where policies play an even bigger role."
Stock funds are growing at a compound annual rate of 36.5 percent since the end of 1990, according to new data released by the Investment Company Institute, a Washington trade group. Here are some other facts to consider:
- Mutual funds held about 20 percent of all publicly traded stocks in 1999.
- About 59 percent of all mutual fund assets are in stocks.
- About 11 percent of all mutual fund assets are in bonds.
- Total assets in bond funds decreased by 2.7 percent in 1999.
- The typical mutual fund investor is 44 years old, married, and employed.
- Baby boomers make up 51 percent of mutual fund shareholders, while Generation Xers represent 22 percent. Members of the so-called "Silent Generation," people born before 1927, account for 27 percent of shareholders.
- An estimated 42 percent of 401(k) assets were in mutual funds by the end of 1998.
- Retirement fund assets account for nearly 35 percent of all mutual fund assets in 1998.
- The average 401(k) balance at the end of 1998 was $47,004.
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