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Emerging markets offer safe harbour

Emerging markets offer US funds significantly safer investment opportunities than some G7 countries, according to new research from risk analysis firm RiskMetrics.

The company's RiskGrades measure the volatility rather than the returns of groups of assets and they show that German and UK assets are significantly more volatile than investments in such countries as China, Argentina and Egypt.

These findings could be especially useful for the small but growing number of fund managers that seek a particular level of risk in their investments - a process common with the sell side that is known as risk budgeting.

Figures are benchmarked to 100, which was the level applied to the entire MSCI universe when the measurements were created in 1998. RiskMetrics then breaks down the MSCI components by country to compare directly their volatility levels. The figures used here are created from the point of view of a US investor, so dollar foreign exchange volatility has an impact.

The higher an asset's grade is over 100, the more volatile it is. If it is 25 points over that 100 level, 95% of the time the value of investments would fluctuate by no more than 5% over a given period.

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