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          The stock markets of many emerging countries around the globe have enjoyed spectacular performance over the past few years.   Traditionally, if a Canadian investor wanted to invest in these countries, an emerging markets mutual fund would be one of the more popular options.   In fact, there is an entire category dedicated to funds of this sort, and investors have a decent selection when it comes to choosing an emerging markets fund.   Since this sector has performed so well lately, a few new sector funds have made their debut.  These new funds could be labeled as Chinese Equity, Indian Equity, Infrastructure, and Clean Energy.

          The sector that has seen the most growth over the past year has been Chinese Equity.  Even though it does not have its own category, Chinese Equity  funds have exploded, and have now attracted about $1-billion in assets under management.   The largest fund in this category would be AGF China Focus. It has been in existence since 1994 and has $360-million in assets under management. Another notable Chinese Equity fund is the Renaissance China Plus fund, with ten years of performance history, and just under $150-million in assets.  The fastest growing Chinese fund would likely be the Investors Greater China Fund, which has just over $150-million under management, but was only incepted in the summer of 2006.  As more investors become aware of investing in Chinese Equities, there is a good chance that these funds will get their own category one day and play a larger role in the portfolios of Canadian investors.

Table I: Five largest Chinese Equity funds by assets under management

Data as of December 31, 2007

Source: Fundata Canada Inc.

          The smaller cousin of the Chinese Equity Fund would be the Indian Equity Fund.  Although it has nowhere near the assets that Chinese funds have attracted, the cash flows into this sector have seen substantial growth.  The only problem here is that there aren't as many options for investment.   When you exclude the alternate versions, there are only two unique funds - Excel India and DPF India Opportunities (you could also make a case for the Excel Chindia Fund, which invests in a mix of China and India).   Over the past two years, the Excel India Fund has nearly tripled in size to $350-million under management. It can also boast plenty of experience in the region with almost ten years of performance history.

          The recent explosion of infrastructure funds can be traced to the booms in China, India, and emerging markets.  Although they don't specifically invest in these countries, their performance is certainly linked to the growth these economies experience.  These funds are mandated to invest in companies that help build the infrastructures of these red-hot economies.  With this growth comes a strong demand for more roads, sewers, improved communication, and anything else that would help a nation strengthen its infrastructure.   The largest fund of this mandate is the Investors Global Infrastructure Fund, which has been around for five years, and has $33-million in total assets.  The rest of the infrastructure funds were created last year, with the offerings from First Asset Management, Mackenzie, and Renaissance being the largest with about $20-million each in assets.

Table II: Five largest Global Infrastructure Funds by assets under management

Data as of December 31, 2007

Source: Fundata Canada Inc.

          The other new sector funds worth mentioning are Clean Energy Funds.  While it has nowhere near the assets or fund choices as the other new sectors, this may change in the near future.  This stems from the recent rise in oil prices, and a shift in attitudes towards using cleaner energy sources.  So far the main offerings are the Creststreet Alternative Energy Fund and Criterion Global Clean Energy, which were both incepted early in the fall of 2007.  If these funds attract the assets of investors, you can expect more clean energy funds to spring up.

          The important thing to remember about these new fund mandates is that they can all be classified as sector funds.  This means that one should not go out and put a large chunk of their portfolio into any of them.   Despite their recent performance, funds that rely on the growth of emerging economies can be extremely volatile. 

Fundata Canada Inc, a leading source of Canadian mutual fund information. For more information, please visit www.fundata.com.

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