(FORTUNE Magazine) – We Said

In "Emerging Markets Take Off" (Sept. 29, 2003), we warned that stocks in developing countries were famously volatile--and soaring in price. Still, their valuations were lower than U.S. equities, we noted, and management and regulatory quality had improved. Our proposal: three equity funds and one bond fund poised to rise but likely to avoid the risks of individual issues.

Update

Our three equity funds have delivered an average 31.4% return since our article, outperforming the 27.4% gain in Morgan Stanley's Emerging Markets Index. The standout was T. Rowe Price Emerging Markets Stock fund (PRMSX),which raced up 33.4%. Despite having more than half its portfolio in Asian stocks, it nearly doubled the 17.3% average return in Asian countries outside Japan. Matthews Asian Growth and Income fund (MACSX), meanwhile, rose 29.9% on its deep value approach. Vanguard Emerging Market Stock Index fund (VEIEX) managed a neat trick: Its 31% rise exceeded that of the yardstick it emulates--Morgan Stanley's Emerging Markets Index. Finally, Pimco Emerging Markets Bond fund (PAEMX) generated a 15.2% return, below its historical average but still enough to beat the relevant bond index's 14.8%.