How to invest where the oil is

The fund's top holdings are in the pre-eminent public companies in the Arab world's core. They include Aldar Properties, a developer in Abu Dhabi; Dubai Financial Market, that nation's stock exchange; EFG Hermes, Egypt's most prestigious investment bank; Bank Muscat of Oman; and Orascom Construction of Cairo, Egypt.

Reflecting the services-intensive nature of the public companies that surround the region's state-owned oil companies, the fund's sector weightings are 63% in financials, 12% in industrials and business services, 6% in materials and 5% in telecommunications. The balance is tucked into a variety of sectors in much smaller chunks.

Country allocations are 24% to Egypt, 23% to the United Arab Emirates, 15% to Qatar, 11% to Oman and 10% to South Africa, with smaller positions in Nigeria, Bahrain, Jordan and Lebanon. (The fund doesn't invest in Saudi Arabia, where almost all businesses are state-owned.)

"What's been particularly interesting has been the return to these countries of their diaspora, who've been educated in Europe and the United States and are going back, bringing with them best (business) practices," Rohm says. "That's been happening in Nigeria and Egypt in particular."

Egyptand the Persian Gulf states on the Arabian peninsula have also benefited from their relative stability in a highly unstable part of the world.

Not oil, but the oil economies

The most obvious investment on the Arabian peninsula would be oil, but state ownership makes direct investment impossible. The T. Rowe Price fund does, however, invest around the fringes of the oil patch through companies such as Qatar Industries, a public subsidiary of private Qatar Petroleum.

There are lots of ways to invest in oil, though, and precious few to tap into the burgeoning economies it supports at its hub.

Egypt's GDP is growing at a rate of 7.6% a year, which Rohm says is about average for the region.

I've long been a convert to emerging markets but have shunned Africa and the Middle East until now because I could not find specialized managers I trusted. As a long-term T. Rowe Price investor -- my largest retirement account is held there -- I feel that obstacle has now been overcome.

I'm not alone: In less than four months the T. Rowe Price fund has attracted assets of nearly $130 million. But that's a trifle by mutual fund standards. This is still a ground-floor opportunity.

The most enduring lesson of the Watergate scandal, in words imputed to Deep Throat by Hollywood, is "follow the money." Money is sluicing into the Middle East. It's time to pick up that trail.

At the time of publication, Tim Middleton owned the following funds mentioned in this article: T. Rowe Price Africa & Middle East and T. Rowe Price International Discovery.

Published Jan. 8, 2008

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