Emerging markets funds, particularly those focused on the BRIC nations of Brazil, Russia, India and China, were the top gainers in 2009, soaring an average of 72%, according to Morningstar data.

But as The Wall Street Journal reminds investors, pointing out 2008’s dismal 55% decline in emerging markets mutual funds, investors should proceed with extreme caution.

“Most fund managers think the China and emerging-markets growth stories are still intact for the long term, but next year’s a tough call because of the run-up we’ve seen this year,” said Gregg Wolper, senior fund analyst at Morningstar.

Nonetheless, managers of international funds argue that the valuations of their funds are below their record highs, giving them cause for optimism in 2010. As Christopher Arbuthnot, co-manager of the John Hancock Global Opportunities Fund, up 93% in 2009, put it: “A lot of the stocks we own are still well below their prices in mid 2008, and yet their businesses haven’t really been affected [by the economic slowdown].”

Bradley Radin, manager of the Templeton Global Smaller Companies Fund, which delivered 70% last year, added: “There are still sectors and countries that are beaten up,” failed to rise in 2009 and are more than likely to do so in 2010.

Among the 25 largest international mutual funds and exchange-traded funds, the biggest ETF winner was the iShares MSCI Emerging Markets ETF, up 68%, and the best-performing equity fund was the Dodge & Cox International Stock Fund, up 48%.

Among funds focused only on China, the Oberweis China Opportunities Fund takes the top prize, having returned an astounding 130% in 2009. By comparison, among Japan funds, the best-performer was the Fidelity Japan Smaller Companies Fund, which rose 20%.

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