Morningstar's John Rekenthaler says investors of emerging market stock funds may have an advantage now that the category is not as popular as it once was. U.S. emerging market funds have been defying the usual rule that weak performance leads to cash outflows.

The category had a come back in 2008 and 2009 but it has been trailing other U.S. stock and bond categories recently. When emerging market stock funds became popular again, its prospects were doomed to worsen, Rekenthaler says.

But the category can become the geek sitting alone in the high school cafeteria once again:

"Over the past week, they put slightly more money into emerging-markets mutual funds than they have redeemed. Flows into ETFs, however, were pleasingly negative. With sentiment improving (in the perverse sense) and valuations at the point where GMO estimates that emerging-markets stocks have the highest expected seven-year returns among the asset classes, emerging-markets funds may be a timely investment." 

Edited by: Casey Quinlan


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