(MONEY Magazine) – THIS MONTH: --What savvy managers are buying now --A fund that focuses on the bluest chips

WHEN IT COMES TO WAKING UP WITH A ROBUST roar, Tony the Tiger has nothing on those Asian tigers: Singapore, Indonesia and the Pacific Rim's seven other emerging markets are up more than 8% on average (in U.S. dollars) so far this year. In addition, those Latin leopards are leaping too: For example, Mexico has gained 10%; Brazil has jumped 21.5%. Frankly, we're not surprised at the quick takeoff. If you focused on the advice in our Forecast issue and jumped in last December, you're undoubtedly pleased. If you didn't, cheer up: It's not too late. Says Robert Markman, president of Minneapolis investment advisory firm Markman Capital Management: "We could see gains of 30% to 50% in the emerging markets over the next year or so." (For another view on the long-term wisdom of investing in emerging markets, see Jason Zweig's "12 Fund Myths" in MONEY's February 1996 issue.)

Chief reason for the rosy outlook: Emerging economies may average 6.3% growth this year--more than double the 2.4% expected for developed countries. Even so, stocks in most emerging markets are relatively less expensive than those in developed markets according to such measures as price/earnings and price/cash flow ratios.

That's why many investment pros say now is a good time to boost emerging market funds to 5% to 15% of your total investment stake, using either new money or taking profits from your U.S. stockholdings. "Selected emerging markets are as attractive as they were in 1993," says Douglas Johnson, senior international strategist at Merrill Lynch. That was the year, in case you've forgotten, when the average diversified emerging market fund soared 72.2%. However, because emerging markets are extremely volatile, you should buy only if you plan to hold your funds for at least three years. Below we offer five selections: two funds that diversify across a dozen or more emerging markets; one that concentrates on Asian tigers; one that focuses on Latin America; and one that buys high-yielding emerging market bonds. Key performance data appear in the table on page 64.

--Warburg Pincus Emerging Markets. The most diversified of all our choices--with 76 holdings in 35 countries--this fund has roughly 60% of its $91 million of assets in Asia, with 20% in Latin America and the rest in Israel, Australia and other areas. "What sets this fund above its peers is that managers Richard King and Nicholas Horsley are extremely good stock pickers," says Larry Chin, associate editor of No-Load Fund Analyst ($225 a year; 800-776-9555). Indeed, while the fund is only 15 months old, Horsley, 36, and King, 51, have 46 years of international investing experience between them. They scour the globe for stocks trading at least 20% below the company's intrinsic value. A recent find: Steady Safe, the second largest taxi and bus franchise in Jakarta (pop. 12.5 million), which could grow more than 30% annually but sells at just 4.1 times estimated 1997 earnings.

--Vanguard International Equity Index--Emerging Markets. For investors who prefer to bet on the markets rather than managers, this $360 million index fund holds 360 stocks traded on 12 of the largest and most active exchanges from Hong Kong to Brazil. Overseen by Vanguard's equity index guru Gus Sauter, 41, the fund's computer program chooses its representative sample of stocks on the basis of P/E ratio, yield, market capitalization and industry group. The fund is less than two years old, but Daniel Wiener, editor of the Independent Advisor for Vanguard Investors ($149 a year; 800-211-7641), calculated that had it been in existence since 1988, it would have delivered an average annual return of 25.9%. "The fund's hypothetical gains are stunning," Weiner says, "but investors shouldn't forget they'll also be getting the roller-coaster volatility typical of emerging markets."

--Colonial Newport Tiger. Sticking with blue-chip stocks of Pacific Rim nations, this $1.3 billion, 5.75%-load fund has been the top-performing fund in the region for the past five years, with an average annual gain of 21.8%. Managers Jack Mussey, 54, and Tim Tuttle, 54, concentrate their investments in the seven markets that have the strongest GDP growth, most predictable earnings and lowest P/E ratios. Currently, 44% of the fund's assets are in Hong Kong. "Hong Kong is a remarkable economic engine that's trading at a 50% discount to the rest of Asia because of mistaken fears about China's takeover in 1997," says Tuttle. "We're confident this discount will evaporate by next June as investors see a smooth transition taking place." One large holding among the fund's 44 stocks: $44 billion (assets) Hang Seng Bank.

--Scudder Latin America. "Latin America has companies that are as good as any in the U.S.," says manager Ed Games, 58. "In fact, the top ones are growing earnings and market share faster, yet can be bought at cheaper prices." One such firm in his 40-stock stable is Grupo Modelo, Mexico's largest beer maker. The $1.4 billion brewer gets 20% of sales from its exports, including Corona beer, and has boosted its share of the Mexican market to 54% from 49% in 1992. Kim Rebecca, an analyst at Chicago fund rater Morningstar, says the fund "has excelled at managing risk while still beating its peers." Indeed, its 14.9% average annual gain for the past three years makes it the top-performing Latin fund.

--Scudder Emerging Markets Income. Typically, emerging markets' bonds yield two to 10 percentage points more than U.S. Treasuries, yet they pose surprisingly little risk of default, according to Ken Gregory, an investment adviser in Orinda, Calif. "Many of the bonds have been restructured so that the interest payments are manageable," he says. This two-year-old fund gained 19.5% last year, vs. 17.6% for the average world income fund. Recently it held roughly 30 separate bond issues--95% of them denominated in U.S. dollars--from 15 countries, including Argentina, Brazil, Poland and Morocco. Managers Isabel Saltzman, 41, and Susan Gray, 31 (pictured on page 64), have the bulk of their $255 million in assets in Latin America, where economic reforms and falling inflation are helping to boost bond returns. Says Gray: "Economic fortunes are improving around the world, but bond prices don't fully reflect this yet." As they do, Gray and Saltzman will be there to reap the benefits.