Color me humbled. You've awarded my team from India and Southeast Asia a trip to the second round, and I think I know why. I think you realized that India and Southeast Asia is the small cap in this global tug of war. You know what? You're right.

India is a small cap
Last round, I was paired against slower-moving economies with stocks that, while potentially underpriced, were already too huge to compete with the emerging opportunities offered by my team. Fortunately, it's no different this time around. Please allow me to steal from fellow Fool Stephen Simpson to illustrate my point:


GDP /Capita

GDP Growth






South Korea




















Data from Economist Intelligence Unit. Projections for 2006.

See what I mean? Developed Asia is a lumbering, slow giant when compared with India and Southeast Asia. That may be good from the perspective of managing risk, but it stinks for investors seeking long-term upside.

Small caps tend to trounce large caps
That's where small caps come in. Over the decades, small-cap value stocks have pummeled their large-cap counterparts. And small-cap growth, while a laggard, hasn't lagged by much. Indeed, on the whole, going small in general tends to be very good for your portfolio, as it has been over the past five years.

It's tempting to say the go-go days are finally coming to an end. That may very well be true here on our shores. But overseas? Asia-Pacific markets, particularly India and Indonesia, have endured steep declines, but without any fundamental meltdown in earnings. That's a value investor's dream.

Reduce risk with top-performing funds
Allow me to admit something Nate is sure to bring up: Southeast Asia carries with it huge risk, but not nearly as much political risk as other entrants, such as the Middle East and Africa. India, after all, is the world's largest democracy. It is a nuclear power. And its common laws are based on the English parliamentary system.

Furthermore, it is absolutely possible to earn diversified returns while investing in the region. Take the 13-year-old India Fund (AMEX:IFN), for example. This New York-based closed-end investment management company trades like a stock but acts like a mutual fund. It also pays a market-beating 12.4% dividend yield (according to MSN Money) and reports all holdings quarterly to the Securities and Exchange Commission. (Here's the latest filing.)

Or, if you'd prefer the comfort of mutual funds, there are several low-cost choices available. Consider Matthews Asian Growth & Income (FUND:MACSX), which has been managed by firm founder G. Paul Matthews since 1994. It's a cousin to Champion Funds market-beater Matthews Pacific Tiger (FUND:MAPTX) and, like its brethren, has pummeled the benchmarks, up an average of 9.88% since 2001 on the MSCI EAFE, the benchmark for international stocks in the United States. Matthews Growth & Income also sports no loads and a 1.27% expense ratio, making it a positively cheap choice for its category.

The most room to grow
In football, it's the little things that make the difference: the perfect pass, the well-placed corner kick, the perfectly timed header. So it is with investing: Small stocks lead to big gains. In this field, on a gross domestic product-per capita basis, India and Southeast Asia is the smallest of the bunch. And now, with a recent downturn offering bargains, plus plenty of diversified, low-cost investing choices, India and Southeast Asia should have enough to advance to the Foolish final.

Take your portfolio on a market-beating trip around the globe by picking up The Motley Fool's inaugural international stock report,Around the World in 80 Minutes. Or, subscribe to any of our investing newsletters and get the report free. All you have to lose is the prospect of richer returns.

Developed Asia is facing India and Southeast Asia in this Investing World Cup second-round match. Go back to the intro page to navigate your way to another part of this contest, and then vote for the region that you think should advance to the final round of the tournament!

Fool contributor Tim Beyers has worked with many Indian firms over the years. He's been impressed every time. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what is in his portfolio by checking Tim's Fool profile.

This article represents the opinion of one Fool and should in no way be taken as the opinion of either The Motley Fool, Inc., or the company in question, or as representative of anyone or anything other than that specific Fool's thoughts. So before buying, do your homework and review The Motley Fool's superbly sportsmanlikedisclosure policy.