Invest in the Middle East -- but Not With Oil

Two new frontier-market funds have come out recently -- the WisdomTree Middle East Dividend Fund ( GULF) and the Market Vectors Gulf States Index ETF ( MES). Like the PowerShares MENA Frontier Markets Fund ( PMNA), they obviously focus on the Middle East.

What's more, they could be right for your portfolio, if you take the time to figure out which of them works best for you.

The frontier segment is becoming more important, as opposed to the emerging-market segment, because these frontier countries are building their economies, and funds such as these can be useful for portfolio diversification. The correlation for most emerging markets to the U.S. has gone up in recent years, as U.S.-based investors have flooded that segment, but frontier-segment countries continue to have little correlation.

To make matters even better, the frontier space is becoming more accessible -- and anyone interested in the space should look at all the choices, decide whether any exposure is appropriate, and then try to choose the fund that makes the most sense to them.

The differentiator for the dividend fund from WisdomTree is that it weights the holdings by dividends paid. MES stands out for being more narrowly focused on just the Gulf Cooperation Council states weighted by market cap, and it excludes Egypt and Morocco, which both weigh prominently in the other funds.

Beyond those structural differences, the funds take divergent paths at the country and sector level. MES invests in only five countries: Kuwait 52%, U.A.E. 25%, Qatar 15%, and then much smaller weights for Oman and Bahrain. GULF favors Kuwait, but only at 25% of the fund, followed by U.A.E. 20%, Qatar 15%, Egypt 11%, Morocco 9% and, again, much smaller weights in Jordan, Oman and Bahrain.

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