For Investors, New Emerging Markets

But investing in frontier markets is not for the lily-livered. Emerging economies are prone to political instability (think of Ukraine's Orange Revolution or the violence that followed Kenya's most recent elections). These economies can be fragile and highly concentrated, often dominated by natural resources, telecommunications and finance. The whole concept of corporate governance is new, transparency is often limited, and markets can be volatile.

Still interested? It's best to start small: Frontier markets make up just 1 percent of world market capitalization; they shouldn't take up much more than that in your stock portfolio. There aren't many frontier funds yet, and those that do exist have short track records: With its Emerging Europe and Mediterranean fund and its Africa and Middle East fund, T. Rowe Price has the oldest retail offerings — the latter launched all of nine months ago. Fidelity's Emerging Europe, Middle East, Africa fund debuted in May; PowerShares' frontier markets ETF should launch later this year. None are cheap, with expenses as high as nearly $200 per $10,000 investment.

A better bet might be a traditional emerging-markets fund. Chris Alderson, who runs T. Rowe's Africa and Middle East fund, also manages the T. Rowe Price Emerging Markets Stock fund, with an assist from Leigh Robertson, who runs the Emerging Europe offering. The broader fund has about 10 percent in frontier markets, including stakes in Omani and Qatari banks. Alderson has been at the helm since 1995, and the portfolio has returned almost 15 percent per year over the past decade, better than 77 percent of the category.

With 41 countries in the portfolio, Eaton Vance's Structured Emerging Markets Stock fund uses a computer-driven strategy and tends to underweight the biggest countries — China gets only a 6 percent weighting, for example — in favor of Ghana and, as of late 2007, Jordan. The fund is sold only through brokers, which means investors may pay up to 5.75 percent up front, but the advisers have been investing in the markets for more than a decade. And when they get uncomfortable with a country's prospects, as they did with Venezuela last year, they divest.

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