After delivering triple-digit gains in the five-year span that ended with June, emerging-market funds have come back to earth, and even  begun dragging on other internationals, according to USA Today.

While international stock funds returned 8.8% for the first half of 2006, emerging markets were up only 6.8%, after falling 5% in the first quarter, according to data from Lipper.

"Probably the best gains for emerging markets are over, said David Chalupnik, head of equities for FAF Advisors, which oversees  First American Funds.

In the first quarter, investors placed $13.4 billion in emerging-market funds, but then, rocky performance made many nervous. After the Federal Reserve boosted interest rates, making bonds more attractive, May 10, investors withdrew  $2.68 billion from emerging-market funds, according to AMG Data Services.

Likewise, investors pulled $1.14 billion from domestic stock funds in June. "As interest rates go up in the U.S., people are thinking  about how much risk they're willing to take on," said Tom Roseen, senior analyst with Lipper. "Many investors have taken a step back and said, 'Maybe it's time to take some money off the table,'" he said.  

Domestic stock funds delivered 3.1% during the first half of 2006, underperforming both international and emerging-market funds. However, the divide between domestic and foreign-equity funds narrowed during the second quarter.

"The same concerns about rising U.S. [interest] rates and high oil prices were affecting markets around the world," said Gregg Wolper, a senior fund analyst with fund-tracker Morningstar, in Chicago.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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