Relentless Growth in Emerging Markets has Rewarded Investors

January 2011

Like young adults repaying their parents for long years of support, consumers in emerging markets lent a helping hand to developed countries struggling through the recent financial crisis.

They could afford to do so. While historically dependent on exports, emerging market growth has been increasingly driven by the rise of the middle-class consumer.

“Certain emerging economies are in better financial shape than their counterparts in the developed world,” says Jessica Hart, co-portfolio manager of the Northern Multi-Manager Emerging Markets Equity Fund. “The asset class is very broad, though, so you can’t paint it with a single brush. But an experienced investor can find real opportunities across this diverse asset class.”

Along with inherently faster economic growth rates, such opportunities might explain why emerging market stocks have outperformed those in the United States, Europe and Japan over the last several years.

It’s a pattern that Hart thinks could continue in 2011 and beyond.

Distinctive approach
For all their newfound maturity, however, emerging markets remain a somewhat tempestuous bunch. “They’re still volatile,” Hart notes. “That part hasn’t changed.”

So how might investors capitalize on the vast potential of emerging market stocks while minimizing downside risk?

“Diversify to manage risk,” says Hart. “Spread the risk between countries and regions — and among managers and managerial styles.”

That last point goes to the heart of what’s distinctive about the Northern Multi-Manager Emerging Markets Equity Fund.

Most emerging market offerings employ only a single portfolio manager or adviser using just one investment approach.

Complementary returns
Hart’s Fund uses four sub-advisers, pain-stakingly vetted from among thousands of managers worldwide on the basis of long-term performance, stylistic consistency, risk controls and operational efficiency.

“We’re looking for advisers whose investment styles complement one another through all kinds of market environments,” Hart says. “We have two growth and two value managers, and each sub-adviser employs a different methodology in picking stocks.”

The four-manager combination is back-tested to measure volatility and performance versus the Fund’s benchmark.

Besides striving for market-beating returns, Hart aims to give shareholders a smoother ride than that offered by traditional single-manager funds.

“We’re after the best of both worlds,” she says. “Less volatility without sacrificing performance.”

What parent could ask for more?

Past performance is no guarantee of future performance.

Equity Risk: Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.

Emerging and Frontier Markets Risk: Emerging and frontier market investing may be subject to additional economic, political, liquidity and currency risks not associated with more developed countries. Additionally, frontier countries generally have smaller economies or less developed capital markets than traditional emerging markets and, as a result, the risks of investing in emerging market countries are magnified in frontier countries.

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