White-hot mutual funds always reach the end of the road, and this could be true for emerging market funds, Investor’s Business Daily reports. Even investors’ interest in these funds is beginning to dissipate.

Whereas emerging market funds took in $6.5 billion in the first half of 2006, they’ve only netted $696.4 million in the first six months of this year.

Certainly, they are still delivering stellar returns. Through July 11, they are up an average of 23.97% year to date, 39.53% for the past three years and 30.05% for the past five years, according to Morningstar. But this cannot continued forever, said Adam Bold, executive chairman of The Mutual Fund Store.

“I think the risk/reward ratio is out of whack. I’m willing to miss the last 15% to the upside in exchange for avoiding a 50% loss,” said Bold, who stressed that the potential for the upside in China, India, Latin America and Eastern Europe has already been factored into their markets.

“I have lived through the collapse of the Mexican market in 1998 and the collapse of the Russian market in 2000,” he said. “I’ve seen this movie a lot of times, and I don’t like how it ends.”

“Some of the valuations have gone up a lot, trading above historical ranges, so I think there will be corrections,” agreed Steve Cao, portfolio manager of the $1.2 billion AIM Developing Markets fund. However, he is more optimistic than Bold. “I think the current state of the emerging markets is much healthier and in better shape right now to weather the downturn—better than the down cycles that we’ve seen previously.”

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