The term emerging markets fund refers to a portfolio of securities originating from one or more developing countries. The objective of an emerging markets fund is to provide investors with higher than average returns relative to those available in what are considered developed or industrialized countries.
Emerging market funds specialize in purchasing securities of companies found in what are considered developing countries. Generally, countries that would be considered "developed" include Australia, Canada, Japan, New Zealand, United States, and Western Europe. Developing countries include those located in Africa, Eastern Europe, Far and Middle East, and Latin America.
The objective of an emerging markets fund is to provide investors with returns that reflect the relatively high rates of growth found in these countries. The term emerging market refers not just to developing countries, but also the fund's management team's estimation of the country's growth potential. The possibility of realizing higher returns does come at a cost. Investors choosing emerging markets funds should have relatively high risk tolerance scores.
Currency concerns, and the threat of political instability, can increase the volatility of these funds in addition to their risk.