Sir John Templeton, the global money manager and philanthropist who recently passed away, was a pioneer in investing outside the U.S. and spent his life encouraging Americans to look beyond the borders of their investment horizon. A new ETF, the PowerShares MENA Frontier Countries Portfolio (NASDAQ:PMNA), follows Sir John's pioneering spirit by opening up access to countries in the Middle East and North Africa. Because these areas of the globe are zones where few investors have any exposure, funds that cover these markets provide unique opportunities for portfolio diversification.

Fund facts

Inception date: July 9, 2008

Expense ratio: 0.70%

Net assets: $27 million

Fund specifics
The Frontier Countries fund is based on an index of companies located in the Middle East and northern Africa. The nine countries in the index include some of the fastest-growing economies in the world, such as Kuwait, Bahrain, and Qatar. The index has a one-year performance return of just over 34%, due largely to the fact that many of the countries in the index are experiencing growth fueled by the explosion in energy prices. More than half the fund is invested in financial stocks, but the index's recent performance indicates that these companies are not like their beaten-down American brethren, such as mortgage giant Fannie Mae (NYSE:FNM), beleaguered broker Lehman Brothers (NYSE:LEH), and banks Washington Mutual (NYSE:WM), and Wachovia (NYSE:WB).

The attributes that make the Frontier Countries fund attractive also illustrate the risks attached. Small emerging markets can be extremely illiquid and subject to extreme price volatility. These companies operate in dangerous parts of the world, and the risks from political or military events are thus magnified.

In addition, although many investors use ETFs for tax efficiency, the Frontier Countries fund is unlikely to be as tax-efficient as a traditional ETF. The fund manager states that redemptions will be done primarily for cash, rather than in-kind redemptions. This unusual arrangement means that portfolio securities will be sold to obtain the cash needed to distribute redemption proceeds and any resulting taxable gain will be passed on to shareholders.

Portfolio fit?
The Persian Gulf area has enjoyed strong revenues from energy sales over the past five years, which has made it one of the fastest-growing areas in the world. The influx of capital related to the energy boom has also contributed to fast-growing construction and infrastructure investment in the region, and has filtered into other sectors as well.

The markets that the Frontier Countries fund invests in have historically had low correlations both to larger emerging markets and to other asset classes, so that an investment in the fund may help to diversify your portfolio. Moreover, as most companies don't list shares on U.S. exchanges, this fund is one of the easiest ways for investors to access these markets. With money flowing as fast as oil can be pumped, prospects seem good for this pioneering fund.

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Fool contributor Zoe Van Schyndel lives in the Seattle area, where she enjoys the coffee and natural wonders. She does not own any of the funds or securities mentioned in this article. The Motley Fool has a disclosure policy.