Despite months of rough waters, some Mediterranean economies now have a wind at their back. This fund provides exposure to this under-the-radar growth story.

The Mediterranean region sat at the nexus of a global crisis of confidence early this year. But the worst of the woes have shifted to Ireland, which has emerged as the latest in a string of countries with their economies on death watch. T. Rowe Price Emerging Europe & Mediterranean (TREMX) has benefitted from these developments, returning more than 23 percent this year. Although that may seem a paltry gain compared to the fund’s 2009 return of 125 percent, it still ranks the fund in the top 6 percent of its category.

That’s an impressive performance from Leigh Innes, who has helmed the fund since 2007. Innes had big shoes to fill. The fund was managed since its inception by Chris Anderson, head of emerging markets at T. Rowe Price International for nearly 20 years. Innes has generated strong returns with the assistance of a handful of emerging-markets specialists and other regional managers.

A growth investor to the core, Innes looks for high-quality companies with solid corporate governance and high profits.

He’s also willing to go against the grain. The fund’s largest country exposure is to the Russian Federation, which accounts for 63 percent of assets. Though market watchers love to hate Russia, corporate transparency has improved in recent years, as Russian companies develop a Western business ethos. Audits by reputable firms also lend more credence to the numbers coming out of the country.

And while there are still idiosyncrasies to doing business in Russia, management teams at Russian companies are increasingly working to enrich shareholders rather than oligarchs.

But unlike most investors, Innes by and large avoids exposure to the country’s mighty energy outfits because of the government’s heavy involvement in the sector. Natural gas giant OAO Gazprom (Russia: GAZP) does figure into the portfolio, but the fund’s two largest holdings are consumer focused: Sberegatelny Sberbank (Russia: SBER) is a former government-supported savings bank, and X5 Retail (Russia: FIVE) operates a large chain of grocery stores in the country.

This focus on the consumer may surprise some investors. But Russia has experienced surging consumer confidence combined with rapid income growth.

Turkey is another major area of focus for the fund. The country’s interest rates have fallen steadily and Turkey enjoys low consumer inflation, which encourages borrowing.

Although it’s still unusual for Turks to take out loans of any sort, especially home mortgages, the volume of loans is expanding rapidly as interest rates hold at 6.5 percent. Mortgage utilization is swelling and a growing number of Turks now use credit cards.

Those trends have benefitted Turkiye Garanti Bankasi (Turkey: GARAN), a provider of corporate, commercial and retail banking services, as well as Turkiye Halk Bankasi (Turkey: HALKB), which specializes in business banking. These firms account for more than half of the fund’s Turkish exposure and are a major driver of the fund’s performance.

Egypt is similarly well-positioned. After years of steady 9 percent interest rates, the Egyptian central bank hiked rates to 11.5 percent in mid-2008 in response to inflation of more than 20 percent.

Inflationary pressures started easing early last year. The core rate fell to 11 percent as the global financial crisis slowed economic growth, and authorities have stepped rates down to 8.25 percent.

Egypt has also slashed both personal and corporate tax rates over the past few years. Tariffs and subsidies have decreased, encouraging both spending and trading. Egypt is also able to shave fees off the global petroleum trade by collecting revenues from tankers traversing the Suez Canal.

The fund’s only Egyptian position is EFG Hermes Holding (Egypt: HRHO), a major investment banking and financial services operation in the Middle East. Hermes has enjoyed strong earnings growth and has acquired a number of smaller regional competitors. The firm has grown its assets under management to USD 4.1 billion and conducted more than USD 2.3 billion in investment banking transactions during the first half of 2010.

Although investors in T. Rowe Price Emerging Europe & Mediterranean will have to stomach significant volatility, those with a long-term focus will benefit from improving fundamentals and a strengthening domestic consumer.