Take part in emerging growth

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Investing in emerging markets can provide enhanced diversification.

With growing populations and huge infrastructure needs, the world's emerging economies are growing quickly. The International Monetary Fund predicted in April 2010 that emerging economies will grow by 6.3% in 2010 and 6.4% in 2011, compared with 2.3% and 2.4% for developed countries.

Most experts believe the strong growth in emerging economies will continue for years. For investors, this spells long-term opportunities in Latin America, Asia, Eastern Europe and other emerging regions.

Growth potential

As developing economies expand, investments in companies that participate in that growth can provide the potential for generous returns. These include not only businesses headquartered in the developing world, but also North American companies conducting business in emerging nations. Canadian resource companies, for instance, have been supplying many of the raw materials that emerging nations need to build their infrastructure.

As more wealth is created in emerging markets and the middle classes grow, there will also be opportunities for domestic and international consumer companies.

In addition to the growth opportunities, investing in emerging markets can provide enhanced diversification through exposure to industries and market sectors that may not exist in Canada and through market performance that doesn't always mirror that of developed markets.

Understand the risks

Before you take part in emerging markets, it's important to understand the risks involved. Emerging markets are typically more volatile than more mature markets, with greater highs but greater lows. Uncertain political and social systems can also affect returns — debt defaults, military intrusions and government crackdowns can sometimes form part of the landscape. Because of the greater risks involved, many experts recommend having only a small portion of your total portfolio in emerging markets.

Taking part

Once you've assessed the risks and opportunities, there are a number of ways to take part in emerging market growth, including:

ADRs. Many emerging market companies trade on U.S. stock exchanges as American Depositary Receipts (ADRs) — which represent shares in foreign companies that are held by U.S. financial institutions and are denominated in U.S. dollars. Any dividends paid are also in U.S. dollars.

Mutual funds. Emerging market funds offer a convenient way to participate in emerging markets. TD offers funds that invest in particular markets or across all emerging markets, such as the TD Emerging Markets Fund.

TD Waterhouse offers tools to research and find suitable emerging markets investments for your portfolio. Start with the WebBroker Markets & Research site (see "How to screen for stocks in WebBroker"). To find out more about emerging markets mutual funds, contact a FundSmart Mutual Fund Specialist at 1-800-461-3863. Or call an Investment Representative at 1-800-465-5463.

Commissions, trailing commissions, management fees, and expenses all may be associated with mutual fund investments. Please read the prospectus, which contains detailed investment information, before investing. Mutual funds are not guaranteed or insured, their values change frequently, and past performance may not be repeated.

The information contained herein is current as of June 15, 2010.

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