Emerging Markets

Abstract

Emerging markets investors face annual investment costs that the author estimates at between 2% and 5% annually. At these levels, the costs are enough to alter the balance between potential reward and risk. The author examines three types of investment costs—transaction–related costs, operating costs, and investment management fees—and a variety of strategies that investors can use to help reduce or control these costs. The benefits and limitations of various approaches are examined, including reducing turnover, purchasing non–domestic shares, altering country allocations, using alternative investment vehicles, and indexing. The author advocates a combination of several cost–limiting strategies combined with active management as the most cost–efficient approach to investing in the emerging markets.