Capital New York

Ten years ago Goldman Sachs' Jim O’Neill saw the future.

He identified hot new growth markets, and gathered them in a metaphysical archipelago of countries he called the BRICs (Brazil, Russia, India, China). As he predicted (or, some argue, partly because he did), these nations' assets as a whole have outperformed the rest of the world by a winning margin.

In the last few years, finance seers have coined new groupings, wanting to be the bankers that bring global investors the next bright young things. There had been a good deal of excitement surrounding the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa), christened by former HSBC Holdings C.E.O. Michael Geoghegan last spring. The "E" in CIVETS is proving the old dictum that with high yield comes high risk. Political upheaval is seldom a bullish scenario, but the odds on a stable democracy in Egypt in the long-term are just another reason that a certain amount of swagger is called for among truly adventurous investors.

So how does a retail investor like you get things right in this ever changing landscape of groupings—with new clubs like the MIST (Mexico, Indonesia, South Korea, Turkey) and the Next Eleven or N-11 (Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey and Vietnam) vying for our attention?

The answer is through diversification, reasonable volatility, and informed risk-taking. They’re found in just the right doses in three groups that the global investment cognoscenti have only begun to whisper about: THORs, MAGNETOs, and MISSKITTYs.

THOR (Turkmenistan, Hungary, Oman*, Romania):
You didn't hear much about the THORs from the plutocrats at the World Economic Forum’s 2011 meeting in Davos, Switzerland. But, then again, when have those guys ever let you in on anything really good?

For the Western retail investor, the THORs are part rediscovery—Hungary, for instance—and part new discoveries, like Oman. They’re exciting for different reasons. Hungary really is on the cusp of getting its fiscal house in order. Romania is aiming to privatize sclerotic state-owned companies that are sure to be limbered up by an infusion of private capital. Turkmenistan is home to the world’s fourth largest reserves of natural gas, as well as an exceedingly low population density of 10.5 people per square kilometer (the 208th in the world according to the U.N.!). Oman was named by the United Nations Development Program (UNDP) the single most improved nation in the last 40 years from a class of 135 countries.*

But how do regular investors get in on the THORs?

You can start by buying stock in Hungary’s telecommunications leader Magyar Telekom (ticker: MYTAY) and retail blue-chip Fotex Elso Amerikai-Magyar (ticker: FOTXY).

That’ll do for your THOR portfolio’s chassis. Now for the engine.

Romania, for starters, brims with promise, with its low labor costs, vibrant football culture and mild climate. How to benefit? Start with the Corbii Valley Project just outside power-city Bucharest. (33 seconds into the video: is that the future you peering out at the present you from your new Romanian home, seconds before it skyrockets in value?) Then use the income from the room you’ll be renting out to an ambitious Romanian yuppie to put a down payment on a two-bedroom 140-square-meter apartment in Muscat. Where’s that? Along the Omani coast. Muscat’s a tourist hotspot and rounds out your Oman exposure. Your Muscat apartment will set you back about $259,000, according to propertyfrontiers.com, but you can top up your Romanian-funded down payment with money borrowed right here in the U.S. Rates are low so that makes sense. And using a U.S. loan plus euro rental income from a Romanian property to buy an Omani second home is what the experts call arbitrage. Or a carry trade. Or just plain smart.

You’re only halfway there though, because without Turkmenistan the THORs would just be HORs. In this Central Asian snow leopard opportunities are ready to pounce. So go here, translate from whatever language it’s in and put your money where your paws are. By the time you’ve got your Turkmen assets lined up in your model THOR portfolio, you’ll be ready to flip your Muscat apartment and use the proceeds to buy Market Vectors Gulf State Index ETF (ticker: MES), an investment fund that holds stocks in all the countries along the Persian Gulf. Sound like your grandma’s buy-and-hold strategy? Far from it. Because only about 5.21% of the MES fund has exposure to Oman. To get rid of the other 94.79% use every financial tool at your disposal—derivatives, hedges, shorts, currency swaps—anything, really. That way you distill your investment into pure Oman risk. Pure Oman risk, that is, within the confines of a THOR portfolio.

MAGNETO (Malaysia, Angola, Georgia, Namibia, Estonia, Tajikistan, Oman*):
Ready to graduate from the THORs? Next step: MAGNETOs. This group is where diversification can truly make its mark. A lot of financial advisors talk diversification but those with a MAGNETO portfolio live it.

First, the ballast for your MAGNETO ship: Malaysia. Placed 10th in the world in a competitiveness ranking by the prestigious IMD, Malaysia sits at a historic crossroads. So grab a piece of iShares MSCI Malaysia Index (ticker EWM), which basically covers all the major Malaysian companies, and hold on.

Because the other MAGNETOs are where your sails will really catch wind.

Like Malaysia, Namibia is at a crossroads (only literally), with South Africa to its south, Angola to its north, Botswana to its east and, to its west, the Atlantic Ocean—a body of water it shares with Brazil, the U.S. and Western Europe! Russia’s Nuclear Energy State Corporation Rosatom Corp. is investing up to $1 billion in Namibian uranium and sightings of the graceful oryx are not at all rare on its skeleton coast. But as a retail investor you can’t invest in Namibian uranium or oryx. Instead, find a way to buy into this cement plant. You’ll kill two birds with one stone. How?

Well, remember, Angola is a MAGNETO too. Once the cement plant goes online, fly down to Namibia and use your portion of the cement to build a house—or better yet, an income-producing building—in neighboring Angola. That’s two MAGNETOs for the price of one.

Next port of call: Georgia. Not the state, but the country that straddles Europe and Asia. A Caucasus nation renowned for its beauty, Georgia is ranked 12th in the world in the World Bank’s ease-of-doing-business index. Now that you’ve learned how to wring out undesirable exposures in your innovative Oman THOR strategy, do the same with Georgia. Only now you won’t need to bother with hedges, derivatives or other highly sophisticated financial instruments because with the knowledge obtained during your THOR ramp-up phase, you’ll be able to design your own financial products. Now listen closely. Buy Guggenheim Frontier Markets ETF (ticker: FRN), which has only a 0.65% allocation in Georgia. Take a weekend to design just the right mix of financial products that will leech out the other 99.35% allocation. You will then have Georgian risk in its most crystalline form to place like a perfectly shaped gold nugget into your MAGNETO power-pouch. Or consider wearing it as a buckle belt or brooch (for the ladies) to that Georgian wedding you have coming up.

MISSKITTY (Moldova, Israel, Serbia, Senegal, Kazakhstan, Iraq, Tuvalu, Tonga, and Yemen):
Yes, the day will come when even the MAGNETOs lose their pull on you. Want to take diversification, reasonable volatility and risk-taking to a level you never thought possible? Enter MISSKITTY.

Investing in the likes of Israel—with dedicated funds like the active Aberdeen Israel Fund (ticker: ISL) and the more passive MSCI Israel Capped Investable Market Index Fund (ticker: EIS) — is your first babystep. For the average Joe investor, the other MISSKITTYs can be far more elusive.

But after taking the master class in THORs and MAGNETOs, you’re no longer the average Joe investor. You’re a member of the global elite.

At this point, do you really need a rule book for MISSKITTY? I bet you’ll be playing by your own rules. But here are few tips, just to get you started.

First up: Moldova, which, situated between Romania and the Ukraine, does possibly the best job of being between one country to the west and one to the east of any other (sorry, Namibia!). By some accounts Europe’s poorest country, Moldova has only one direction to go in: Up! That’s been the bet of France’s LaFarge, the construction-materials giant that is running a cement plant there. But LaFarge only owns 95.31%. What about the other 4.69%? Enter you.

Moving on to Serbia: This Balkan tiger is ready to roar. Want a piece of it? Well, the Serbian government is selling its stake in its most profitable company, Telekom Srbija. Say Deutsche Telekom ends up as the owner. First thing you do is buy truckloads of its stock (ticker: DTEGY.PK). Then, during the next Deutsche Telekom board meeting at the Bonn headquarters, you sneak into the building disguised as a German postal worker. Once you’re outside the board room, discreetly open the door and throw in a smoke bomb. During the ensuing confusion, slip a notarized agreement for Deutsche Telekom to sell off all of its businesses except for Telekom Srbija into the stack of items on the agenda. Once the smoke clears, with all the signing that goes on at those meetings, the executives will realize what they’ve done only when it’s too late. But you’ll know exactly what you’ve done. In three steps, your DTEGY stock has become pure play on Serbian telecoms.And here a pure play is a pure win.

Finally, even at this stage, some of you might miss the appeal of Tuvalu and Tonga, MISSKITTY’s twin Ts. Both island nations face major challenges posed by global warming. Indeed, Tuvalu’s highest elevation is 15 feet above sea level. In all likelihood, within your lifetime the country will be submerged entirely and the thousands of residents will have to be airlifted to nearby countries. Where can money be made?

Well, as a global investor, volatility and uncertainty are now your bread and butter. So ask yourself this: What if global warming reverses itself and the oceans retreat? Both countries will have more, not less land. And if the seawater does swallow them whole, you know what to do. Tap into the vast network of tax advisors you’ve built up along this journey and ask them about deductions for losses incurred by vanished countries. I’ll bet they’re pretty hot.

* Yes, OMAN is both THOR and MAGNETO.

Felipe Ossa is a financial reporter, focusing on structured finance and Latin America, and a playwright (Monetizing Emma, about a bank plot to securitize smart teenagers, and Cake, an international Trotskyite kidnap sex farce).