Are Small-Cap and Emerging-Market Funds a Good Idea?

In this edition of The Motley Fool's "Ask a Fool" series, Motley Fool One analyst Jason Moser and Motley Fool Stock Advisor analyst Brendan Mathews take a question from a reader who asks: "Are small cap, and emerging market index funds good idea, or are these two areas where the expertise of a managed fund is worth the cost?"

Brendan is skeptical of the idea that investors need an active manager for U.S. small-cap stocks, and Jason points out the diversity benefits of an index fund. As for emerging-market stocks, Brendan believes this is an area where active management may add value, as the big emerging index funds tend to be heavily populated with large state-owned enterprises that consider serving stockholders a secondary priority. Jason points out an alternative strategy for gaining exposure to emerging markets -- global blue chips with exposure to these markets.

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