You are using an outdated browser. Please upgrade your browser to improve your experience. Which should you buy? By Steven Goldberg , Contributing Columnist July 12, The reason is simple: A manager who is smart and diligent can add value by uncovering nuggets that others miss.

Emerging markets seems just the place to topple the efficient-market theory. Few accept the idea that markets are completely efficient, but most observers have come to believe that the market is pretty efficient -- and awfully tough to beat.

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The hardest place for an active manager to excel should logically be in large U. Apple, for instance, has 47 brokerage analysts tracking its every move.

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Smaller companies are less researched, and that means energetic investors are more likely to unearth bargains in that segment of the market. Virtually no part of the market, however, is less understood than emerging-markets stocks. Insider ownership is sometimes hidden. Politics within countries -- think Russia or China -- can be mysterious and unpredictable.

Corruption is often a problem. Then why is it so hard to find a decent actively managed, no-load emerging-markets fund? Over the past ten years through June 30, the top performer is DFA Emerging Markets Value Institutional DFEVX -- an index fund that specializes in undervalued stocks and that is available only in a small number of employer-sponsored retirement accounts or to individual investors who employ a DFA-schooled adviser.

Consequently, I frequently fall back on an old favorite, Vanguard Emerging Markets Stock Index VEIEX , or its exchange-traded twin, Vanguard MSCI Emerging Markets ETF VWO. Over the past five years through July 8, the mutual fund version returned an annualized Expenses are just 0. When you buy or sell Apple, the spread between bid and asked prices is usually a penny. In emerging markets, spreads are typically much higher. Moreover, with fewer securities cops on the beat in emerging markets than in developed lands, stock prices are more likely to be subject to manipulation.

For example, front-running by brokers -- buying or selling a stock ahead of a big customer, such as a fund -- is more likely to be found in emerging markets than in the U. So it comes down to this: That means that, on average, it holds a stock more than eight years.

The firms all have experience in emerging markets and with Vanguard, which outsources management of nearly all of its actively run stock funds. Annual expenses for the active fund, which launched June 27, are just 0.

The fund is available directly from Vanguard, not through outside online brokerages. Vanguard argues that this policy will prevent the new fund from being inundated with assets, which might make it harder to manage. The fund started with zero assets. I think Vanguard simply wants more captive investors.

Wellington Management runs Vanguard Wellington, Health Care and Energy, as well as parts of other funds. Pzena Investment Management has managed an Irish-domiciled Vanguard fund for non-U. These are solid managers. Plus, the fund should benefit in the early going from a small asset base.

Vanguard is pretty good at identifying solid outside managers. But emerging markets have proven to be the undoing of active management before. My money is on the index fund.

Steve Goldberg bio is an investment adviser in the Washington, D. Toggle navigation Menu Subscribers Log In. Sections Close Menu Wealth Creation Investing Retirement Taxes Your Money Your Business Magazine Contents.

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