Coruscation

Funds and ETFs
The best way to play individual countries is through exchange-traded mutual funds. You can track Russia via the Market Vectors Russia exchange-traded fund, Mexico via the iShares MSCI Mexico Index ETF and Taiwan via the iShares MSCI Taiwan Index ETF, among others.

Placing individual country bets isn't for the timid, however. Emerging markets are notoriously volatile, and single-country ETFs are susceptible to big swings. "These ETFs can have enormous years on the upside and enormous years on the downside," says Howard Sontag, chief executive of Sontag Advisory LLC in New York.

With correlations breaking down, the safest way to play emerging markets is to invest in a broad range of nations. You might assume that diversified index funds or ETFs would be a good vehicle. But those tend to be dominated by the biggest companies in the biggest markets--China and India among them.

"You can't just invest in the aggregate index," says Nuno Fernandes, a professor of finance at the International Institute for Management Development in Lausanne, Switzerland. "You have to do a better job of choosing where to invest."

An actively managed mutual fund might be a better alternative, because the manager, in theory, has the expertise to make the difficult strategy calls that most individual investors can't. To find the most experienced, scour fund websites for information about managers, and look for tenures of five years or longer or other emerging-markets experience.

The top performer during the past three years has been the Aberdeen Emerging Markets Institutional Fund, which gained 11% annually, according to investment-research firm Morningstar Inc. As of the end of January, it had 17% of its portfolio in Brazil, about one percentage point more than the MSCI Emerging Market Index--and just 5% in South Korea, versus 7% for the index.

The best performer on a five-year basis is the Wells Fargo Advantage Emerging Markets Fund, returning 13% annually. As of the end of February, Korea made up just 10% of the portfolio versus 15% for its benchmark, while Mexico accounted for 5.6%, more than the benchmark's 4.5%. The fund focuses on companies more than countries, says portfolio manager Jerry Zhang.

The menu of actively managed portfolios is growing. Firms have rolled out 23 new diversified emerging-market funds during the past 12 months, according to Morningstar, compared with six in the year-earlier period. There are 135 actively-managed emerging-market funds overall, according to Morningstar.

A caveat: Most actively managed funds lag the index over time. And for some of the firms rolling out new funds, this will be their first emerging-markets product. Among them: Marsico Funds, Baron Funds and Fred Alger Management Inc.'s Alger Funds.