Most investors have never even heard of Namibia, a country about half the size of Alaska located on the southwestern coast of Africa. Namibia has an arid climate and a population of just over 2 million, but it's also a nation of extraordinary natural resource wealth -- including uranium, lead and diamonds.

Investors might be surprised to hear that the tiny Namibian stock market is up more than +200% since the S&P 500 hit its October 11, 2007 high. That's impressive -- particularly when you consider the S&P 500 is down more than -15% since that date. Most European markets are also lower since that time, some down even more sharply than the U.S.

Of course, the Namibian market is tiny and obscure, but it's not alone -- there are plenty of smaller foreign stock markets that have handily outperformed the S&P 500 in recent years.

Located half a world away in Asia is Vietnam, nation with a population of 87 million and a per-capita gross domestic product of just $2,600. The communist government in Vietnam has been taking steps to open up the nation's economy and encourage foreign investment and trade. Now the economy is booming and so is the market. Despite a drop in the Vietnamese Ho Chi Minh Stock Index over the past few months, it is still up close to +200% over the past five years. That's equivalent to an annualized gain of nearly +25%.

And consider the far larger and more developed countries of the Gulf Cooperation Council (GCC). The list of GCC countries includes Qatar, Saudi Arabia, Bahrain, Oman, Kuwait and the United Arab Emirates. These countries, while far larger than Namibia, are equally unknown to U.S. investors. But the Bloomberg GCC 200 Index is up over +20% since the S&P 500's October top.

These up-and-coming countries are known as "frontier markets." While the terms are loosely defined, frontier markets tend to be smaller and less developed than emerging markets like China and India. But their growth potential is staggering. Many of the frontier markets are showing annual economic growth of +7-14% annually. As these economies grow and consumers become wealthier, there are myriad opportunities for businesses to expand.

This growth is reflected in stock market performance -- as our chart shows, the Merrill Lynch Frontier Markets Index has handily outperformed the S&P 500 over the past five years, offering a total return approaching +60% annualized.

Individual investors all too often shun frontier markets, assuming these countries are a risky bet. Certainly, individual frontier markets can be more volatile than their developed market counterparts. But that doesn't mean putting a portion of your portfolio into frontier markets is a risky proposition.

While they are volatile, frontier markets do not necessarily move in the same direction as the S&P 500. For example, many Middle Eastern and African frontier markets have performed well over the past year thanks to heavy exposure to the energy and natural resource industries.

The GCC nations alone are expected to see oil revenues top $600 billion for 2008. That's a flood of cash, especially when you consider that the combined gross domestic product of the GCC countries stands at just a little more than $1 trillion.

With this in mind, holding a small weighting in frontier markets as part of a larger portfolio offers investors an important measure of diversification.

Moreover, institutional investors are always looking for the next up-and-coming growth story. As a result, many funds have discovered the growth potential of the frontier markets and are allocating a portion of their portfolios there. While the amounts allocated by each fund may be small in percentage terms, they represent a large cash infusion for many frontier markets. Consider that the majority of frontier markets have equity market capitalizations under $10 billion -- even a small investment can provide a powerful tailwind.

Until recently, investing in these markets was nearly impossible for American investors. There are very few companies based in frontier markets that also list their shares as American Depositary Receipts (ADRs) on the major U.S. exchanges. As a result, only institutional players could really buy into these exciting growth stories.

But that has changed. While some frontier markets are still closed to foreigners, most welcome the investment. And a series of U.S.-listed exchange-traded funds (ETFs) have been launched over the past two months that finally give the individual investor direct access to these exciting markets.