Most emerging markets funds tend to treat the Middle East and Africa as investment deserts. But given recent scorching-hot returns, you might want to give those areas a closer look.

If you're sick of watching your hard-earned dollars flow into the gas pump, the T. Rowe Price Africa & Middle East Fund (TRAMX) provides an opportunity to turn the tables and take advantage of the rise in energy prices. Launched last fall, the fund is already up about 31% since its inception. Exposure to these regions can provide diversification benefits and, at times, the potential for healthy returns.

Fund facts

  • Inception date: 9/4/07
  • Expense ratio: 1.75%
  • Net assets: $416 million
  • Investment minimums: Regular $2,500; IRA $1,000

Fund specifics
The Africa & Middle East Fund currently has its investments focused in four countries, with the United Arab Emirates and Egypt each at roughly 20%, and Qatar and Oman coming in at close to 15% each. Well behind these leaders is South Africa, which accounts for a 6% slice of assets. This low exposure to the southern tip of the continent has been a good thing lately as that country has been struggling with a deteriorating economic and political outlook.

The fund has a heavy concentration in financials, at 57% of the total portfolio and a relatively high cash level of 14%.

The fund will normally include 30 to 40 companies in its portfolio. Currently, the largest holdings are:

  • Emaar Properties, one of the world's largest real estate companies
  • Commercial Bank of Qatar
  • Aldar Properties
  • Bank Muscat SAOG

Regional outlook
Middle East countries are experiencing strong economic growth driven by high energy prices and infrastructure spending. Oddly enough, energy doesn't play a large role in these countries' stock markets. Unlike Western oil companies such as Exxon Mobil (NYSE: XOM), BP (NYSE: BP), and Chevron (NYSE: CVX), most Middle East oil companies are state owned. Instead, these markets are more focused on financial companies, which are reflected in the fund's holdings.

Portfolio fit?
An investment in this fund involves a number of risks, including market volatility and exposure to politically unstable countries. The fund also concentrates its holdings so that the poor performance of any single large holding could adversely affect its performance.

However, most investors have little, if any, exposure to the Middle East and Africa. Most of the companies owned by the fund aren't available to investors in the U.S. Because these two regions include countries which are rapidly developing, they provide potential for strong capital appreciation as well as diversification.

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Fool contributor Zoe Van Schyndel lives in Miami and enjoys the sunshine and variety of the Magic City. She does not own any of the funds or securities mentioned in this article. The Motley Fool has a disclosure policy.