Harding Loevner Emerging Markets Equity, a member of the Kiplinger 25, is finding opportunities on the frontier. By Nellie S. Huang, Senior Associate Editor June 17, 2013 After a terrible 2011, developing-nations stocks roared back in 2012, with the MSCI Emerging Markets index climbing 18.6%. Many investors hoped the good times would continue, but emerging-markets stocks have been submerging in 2013. So far this year, the group has tumbled 8.3%. What gives? See Also: The Kiplinger 25 The index's overall return masks the performance of its parts, says Richard Schmidt, co-manager of Harding Loevner Emerging Markets Equity (symbol HLEMX). “One of the reasons the index has been weak is the poor performance of its heavyweights,” he says. Stocks from Brazil, Russia, India, China and South Africa (collectively known as the BRICS) make up nearly half of the MSCI Emerging Markets index. Year to date, Brazil's market has slipped 15.2%, Russia's is down 12.9% and Chinese stocks have fallen 12.1% (all returns are through June 14). Other emerging countries have performed better, but they make up a smaller part of the index. Stocks in the Philippines, for example, have gained 2.1% this year; Hungary has climbed 8.7%; the market in Malaysia is up 4.2%. Emerging Markets Equity, a member of the Kiplinger 25, has weathered the recent decline well: Since the beginning of the year, the fund has slipped 4.6%. That's nearly four percentage points ahead of the MSCI index and a bit better than the typical diversified emerging-markets fund, which lost 5.7%. Schmidt and co-managers G. Rusty Johnson and Craig Shaw have been finding better opportunities in smaller emerging-markets countries, so the dips in the BRICS didn't hurt the fund as much as they hurt the index. At last report, the managers had 5% of assets invested in Indonesia and 3.8% in Turkey (by contrast, the index's allocations in those countries were 3.1% and 2.2%, respectively). Also, Schmidt and company have been venturing into so-called “frontier” nations -- countries with markets so small that they don't merit a spot on the MSCI Emerging Markets index. Those have done well: The MSCI Frontier Markets index has climbed 15.6% year to date. Harding Loevner has about 8% of its assets invested in frontier countries, including Qatar, Nigeria, and Saudi Arabia. The fund's frontier allocation will continue to rise, says Schmidt, until it hits about 10% of assets. Rather than assess prospects for countries, the Harding Loevner managers focus on individual stocks. They look for well-managed, financially strong businesses with strong competitive positions. Two of the fund's best performers are Copa Holdings, a Panama-based company that owns a leading Latin American airline and cargo service (up 82.8% over the past year), and Garanti, one of the biggest banks in Turkey (up 34.5%).