Increased confidence in emerging market investments was underlined today by Excel Funds Management’s announcement that it has reduced the investment risk rating for two of its newest funds.

Bhim D. Asdhir, president and CEO of Excel Funds Management, explained that the change “recognizes the fact that the ratings of emerging market sovereign and corporate debt has improved steadily over the past ten years. The proportion ranked investment grade has grown to more than 50% from 5% in the early 1990s.”

Investment risk ratings are based on guidelines established by the Investment Funds Institute of Canada. Under the system, mutual funds are classified in one of six broad risk categories, ranging from very low risk to high risk, defined on the basis of the historical standard deviations of appropriate market benchmarks.

“While there are misconceptions about emerging markets risk, the fact is they have joined the mainstream in terms of investments and they are now a low risk, high return proposition. Over the five years ended February 28, 2011, the standard deviation for the S&P/TSX was 20.1% compared to 26.4% for the Morgan Stanley Capital International (“MSCI”) Emerging Markets Index, 16.1% for the MSCI World Index and 18.7% for the MSCI EAFE Index, indicating that emerging markets are as safe as the world as a whole,” Asdhir explained.

“Importantly, over the same period, the returns for the S&P/TSX were +39.1% while the MSCI Emerging Markets Index returned +36.2%. The MSCI World and MSCI EAFE Indices were -0.95% and -0.77% respectively. Emerging market bonds in particular are a good alternative to High Yield Bonds, with higher returns and lower risk. In 2010 Emerging Market Debt outperformed all asset classes except gold—better than US high yield, high grade, and fixed income; and they have better credit ratings than high yield bonds,” he added.