These three closed-end funds look cheap compared with the value of their underlying holdings. By Thomas M. Anderson, Contributing Editor March 29, 2007 High-flying emerging-markets stocks have dropped like a brick. Or, should we say, they have dropped like a BRIC, the acronym used to describe the rapidly growing economies of Brazil, Russia, India and China. Stocks in those countries have rebounded since plunging during the worldwide sell-off on February 27, but the MSCI BRIC index is still down 3% so far this year through March 28. But don't put away your passport just yet. Closed-end funds that invest in stocks of emerging markets can offer a safer way to trot the globe with a small chunk of your portfolio. Unlike traditional, or open-end, mutual funds, closed-end funds issue a fixed number of shares. Those shares trade like stocks, but they can sell for more or less than the assets the funds hold. Closed-end share prices depend on investor demand. That means you can sometimes buy closed-end fund shares at a discount to the value of their underlying holdings. In fact, the average closed-end fund that invests in stocks of emerging markets traded at a 6% discount to net asset value (NAV) as of March 28, according to fund research firm Lipper. Closed-end funds are built better for emerging markets than are traditional mutual funds. Managers of closed-ends don't have bother with selling or buying stocks in response to flows in and out of their funds. This is particularly helpful in emerging markets because many stocks in those countries aren't terribly liquid -- that is, they aren't easy to trade. So, emerging-markets managers can stick with a stock without having to worry that they need to sell it to meet investor redemptions. Many of the emerging-markets closed-end funds that sell at discounts invest in only one country. It's better to spread your risk with a closed-end fund that invests in a basket of stocks from several countries. Here are three funds, two veterans and one newcomer, worth consideration: Templeton Emerging Markets is the granddaddy of funds that invest in stocks from exotic locales. Trailblazer Mark Mobius has run the fund (symbol EMF) since 1987. He is supported by a staff of analysts that reaches across the globe. The fund currently holds large positions of energy and financial stocks in South Korea, China, Taiwan, Brazil and South Africa. Oil companies Petroleo Brasileiro and PetroChina, as well as Samsung, the South Korean electronics marker, are among the top portfolio holdings. Over the past 12 months, the fund has traded at a 6% discount, according to fund researcher Morningstar. On March 28, the fund's shares closed at $16.63, representing a 9% discount to NAV. Over the past five years through that date, the fund's shares returned an annualized 20%, which beat the gains of the average diversified emerging markets fund by an average of four percentage points a year. The fund returned an annualized 24% on its assets (return on assets measures the manager's skills; return on share price reflects the manager's skills to some degree but also reflects investor sentiment toward the fund). The fund charges 1.58% a year for expenses, which is average for the category. If you fancy yourself an investing Indiana Jones, take a look at Templeton Dragon. Another fund run by Mobius, it focuses on stocks in China, Hong Kong and Taiwan. The more concentrated approach means that this fund (TDF) may stumble if the region lags. But under Mobius' control, Dragon has sparkled like Hong Kong's skyline. Over the past five years, it returned an annualized 29% on its shares, which beats the average Asia Pacific stock fund by an average of 10 percentage points a year, and an annualized 28% on its assets. Dragon closed on March 28 at $22.44, or a 12% discount to NAV. The fund, which sports a 1.52% expense ratio, traded at an average discount of 6% over the past 12 months. Think chasing dragons is tame? Try RMR Asia Pacific Real Estate. The fund (RAP) started last year, but has experienced hands at the helm. Melbourne, Australia-based managers Craig Dunstan and Craig Turnball have decades of experience investing in stocks of international real-estate companies. The fund has large holdings in the Pacific Rim and a smidgeon in Latin America. Since its inception, the fund has sold at an average discount of 6%. It closed at $23.86 on March 28, or a 10% discount to NAV. Since its May 2006 inception, the fund has returned 2% on its shares and 12% on its assets. It carries an average 1.50% expense ratio.