NEW YORK -- For investors in emerging markets mutual funds, the last five years have been Murphy's Law in action. Whatever could go wrong did go wrong.

The trouble started with the Mexican peso crisis in 1994. It segued into Asian financial woes (1997 to present), Russia's default on its foreign debt in 1998, then currency devaluation in Brazil.The net result: What once had been regarded as a promising road for investors seemed to have turned into a desolate dead end.

But emerging-markets stock funds, bruised and battered as they may be, haven't dropped off the financial map altogether. In recent months, they have staged a respectable rally, though many clouds still remain in the outlook for this whole style of investing.

"It's not pleasant to lose people's money. I think about that a lot," says Travis Selmier, manager of the $240 million USAA Emerging Markets Fund and of other international investments for the fund family run by USAA Investment Management in San Antonio, Texas.

"But I generally feel that my investors know their risks, and a lot of people have stuck with it. I know at some point this is going to be a good investment for people."

Over the five-year period ended Feb. 28, Morningstar Mutual Funds' composite of 165 diversified emerging markets stock funds averaged a negative total return of more than 10 percent a year, capped off by a drop of just under 30 percent in the latest 12-month period.

The pain of that awful showing was compounded by the contrast to how well U.S. stock funds fared over the same period, averaging a gain of 16 percent a year.

Everybody who puts money in volatile investments like emerging-markets funds is routinely advised to be ready to ride out short-term storms. But five years of repeated disappointment stretches the definition of "short-term."

Yet despite all that, emerging-markets stock investments haven't lost all their allure for contrarian-minded investors, who love to pick through the debris of investment debacles for bargains. In the past six months, Morningstar's emerging-markets average has enjoyed a bounce of almost 14 percent.

"The macroeconomic fundamentals in most of the emerging markets are as bad as they can be -- some are still deteriorating and some are starting to recover," says Mark Madden, portfolio manager of the Pioneer Emerging Markets Fund in Boston.

"But equity assets in most emerging markets are attractively valued. Given current valuations in many of these markets, we expect that over the next three to five years their potential returns could again be attractive."

Selmier at USAA says he has learned some useful lessons through all the recent trouble. When picking individual stocks to buy, sell or avoid, he says, "we look more at macroeconomic and political trends. The country-by-country asset allocation decision has gotten more important."

Among the 105 or so stocks in his fund's portfolio, the countries with the greatest current representation are, in order: Mexico, South Africa, Brazil, Israel, Hong Kong-China, and South Korea.

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One lesson from recent history that any fund investor can heed: As with other types of high-risk investments, it's hard to do well in emerging-markets investing if you wait until the field looks safe before you venture into it. The last time a solidly bullish consensus prevailed about emerging markets was 1993, which turned out to be a terrible time to buy.

But it still stands to reason that there will be many success stories arising from emerging-markets economies in the years ahead.

In the words of Angus Tulloch, who handles Asian and emerging-markets investments for Babson-Stewart Ivory International, a Scottish-U.S. joint money-management venture: "The question this year for global emerging markets is whether, after five dismal years, there may be light at the end of a long. dark tunnel.

"On the whole, we expect a further volatile year in emerging markets, but good buying opportunities will certainly arise."

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