As the sun starts setting earlier and the days get shorter, it's clear that fall is upon us. Soon we will say goodbye to sunny weather and watch the trees change color. While we wait for the air to cool, we can take a look back at the summer of 2007 and remember what was hot during these months -- including in the investment world.

Summer lovin'
The chart below lists the 10 funds with the highest three-month performance from June to August:

Fund Name

3-Month Return

iShares FTSE/Xinhua China ETF (NYSE:FTI)


Oppenheimer Baring China Fund (OBCAX)




UltraShort Real Estate ProShares ETF (AMEX:SRS)


Columbia Greater China Fund (NGCAX)


AIM China Fund (AACFX)


Matthews China Fund (MCHFX)


JP Morgan China Region Select Fund (JCHSX)


Eaton Vance Greater China Fund (EVCGX)


Guinness Atkinson China & Hong Kong Fund (ICHKX)


Almost all of these funds have something in common. Notice what it is?

Yes, the Chinese market has really been heating things up lately, and funds that invest in this area have benefited tremendously. China-specific funds have been on a tear, garnering assets as performance has gone through the roof.

Big companies like China Mobile (NYSE:CHL), China Life (NYSE:LFC), and Petrochina (NYSE:PTR) have done remarkably well lately. Many short-sighted investors have been lured by the outsized gains these funds have posted in recent months and are rushing to cash in on the Chinese money train.

How not to chase returns
But Foolish investors know better than to be tempted by short-term returns like these. Chasing returns is a losing game. Country-specific funds like the China funds listed above can be notoriously volatile. Emerging markets like China are especially susceptible to wide swings in performance from quarter to quarter.

Remember back in February when the Chinese market fell more than 8% in a single day, spreading fear across the globe? Although the drop was a shock to the investing community, some had been predicting one for a while, given the fact that the Shanghai market was up 130% in 2006. Despite that temporary panic, the market took off yet again, reaching record heights. Is another, more sustained drop right around the corner for China? It's possible.

At any rate, the gains of this year make a downturn more likely now than it was several months ago. This is why you should not go running after the hottest-performing markets -- no country, sector, industry, or asset class stays at the top of the performance charts for too long.

Widen your focus
In addition, most country-specific funds are more expensive than their more diversified counterparts, and many of them are fairly new -- two traits you don't want in any mutual fund that you own. For example, of the nine China-specific funds listed in the chart above, six have expense ratios above 1.5%, and two of them charge more than 2%! Yet only four of those funds have been around longer than three years.  

Fortunately, it is the rare investor who actually needs an entire fund that focuses on China or any specific country. These funds are too narrow for most investors, so you'd be better served by sticking to a diversified international fund that invests across the globe.

Remember that additional reward does not come without additional risk, so if you are thinking of getting into a China fund in the hopes of making a quick buck, you may be unpleasantly surprised a year or so from now. So think broadly when it comes to international investing. Odds are a more diversified foreign fund will be more than just a summer fling.

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Fool contributor Amanda Kish lives in Rochester, N.Y., and does not own shares of any of the companies or funds mentioned herein. China Mobile is a Global Gains recommendation. The Fool's disclosure policy always wears sunscreen while enjoying its summer fun.