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Like pioneers arriving on the shores of unmarked territories in search of fortune, a rash of investment houses have begun trawling smaller frontier markets such as African nations, the Middle East and remote parts of Asia in search of greater returns.

Recent weeks have seen Dalton Strategic Partnership bring the first Pakistan-focused fund to European investors, while JPMorgan Asset Management joined the long line of firms launching an African equity vehicle and Investec Asset Management brought its Africa & Middle East offering onshore.

Over the last year, more-established emerging markets nations provided as much excitement as any investor could ask for with the MSCI India rising by 70.2 per cent over 2007, then falling by 26.2 per cent year-to-date. Similar figures suggest China’s economic boom has also fizzled-out in the short term.

Many commentators are welcoming these emerging giants into the establishment and hailing them as saviours of global GDP. Amid this economic equivalent of plate-tectonics, some predict frontier markets will fill the place emerging markets once took up in many investors’ portfolios.

But can countries like Kazakhstan, Vietnam and Nigeria, with all their political risk, currency fluctuations and liquidity issues, really be the answer? When Franklin Templeton’s Mark Mobius starts making his much mooted investments in Iraq, will retail investors really start queuing up to invest?

Amr Seif, portfolio manager of Investec’s new Africa & Middle East fund, says frontiers are adding to, rather than taking over from, exposure to emerging markets. "We have seen a large rise in demand for frontier funds from higher-risk investors, but that demand has not replaced the desire to have exposure to China and India," he says. "They may have fizzled-out a bit, but the long-term story is still intact.

"The growth of demand for Africa and the Middle East is an acknowledgement that they are increasingly wealthy regions with all the ingredients for economic growth."

Rising commodity prices have led to rapidly increasing wealth accumulation in many African countries. The continent is also set to benefit from demographic changes, as the workforce becomes younger, larger and more productive. All this is leading to greater consumer spending and more efficient economies.

The Investec fund, which was previously only available as a Guernsey-domiciled vehicle, invests across 26 countries, including South Africa, Nigeria, Zambia, Qatar, the UAE and Egypt.

While the manager acknowledges the fund is considered a risky investment, he believes its target regions are becoming safer places to invest by the day.

"There are well-documented political risks in Africa and the Middle East, but they are actually at historical lows," says Mr Seif. "There are very few African conflicts at the moment and even Zimbabwe is sorting itself out."

"Inflation and currency also create risks, but the economic risks are markedly lower today than 12 months ago, and back then, they were lower than 12 months before that."

Last week, London-based Dalton announced its pairing with Karachi-based KASB Funds to launch its Melchior Selected Trust Pakistan Opportunities fund.

Pakistan warrants particular attention given its economic growth, Dalton believes – the country’s GDP increased by 39 per cent in 2007. The region is benefiting from its agricultural growth as food prices climb, as well as its continuing oil exploration efforts.

Naz Khan, chief investment officer at KASB Funds, says despite political tensions in Pakistan, the drive towards economic liberalism is continuing unabated.

“We have had elections and can see the democratic structure evolving. Successive governments here have introduced progressive economic reforms. From Benazir Bhutto’s government in the 1990s until today, it has continued throughout in the same direction.”

The Pakistan Opportunities fund has 19.8 per cent of its portfolio in oil exploration, the largest sector position. This is followed by commercial banks at 16.7 per cent, and fertiliser at 9.6 per cent.

David Graham, partner at Dalton, says: "In looking at the Pakistan market today, we see many similarities with the Indian economy and stock market of five years ago before it enjoyed its strong rally. The Pakistan market has been described as buying India at half the price."

For many, the appeal is the funds' ability to add diversity to a portfolio due to their low correlation with established markets. With frontier funds showing themselves to be quite different beasts to their developed and emerging counterparts, what difference does this make to investors?

Nick McBreen, an IFA at Truro-based Worldwide Financial Planning, was enthusiastic. "To any investor with a very high risk profile looking for an opportunity it offers an attractive route.

"I'll put my hands up – I certainly don't visit Africa often. You need to trust the groups to have people on the ground with local knowledge.

"If they are just buying in data that is available elsewhere, where's the value added?"