Asian stocks hit a 14-month high Tuesday, with the MSCI index of Asia Pacific shares outside Japan up almost 55 percent year-to-date. But that doesn’t mean it’s too late to invest in the sector, as long as you have a long-term investing horizon and proceed with caution.

“I think a lot of people get excited about emerging markets especially at times like this, now that they’ve been on a good tear,” says Bill Rocco, senior analyst at Morningstar. “It’s not that they’re not good long term investments—but you need a very long horizon: 10 to 20 years. Emerging market exposure is a good thing for a long-term risk-tolerant investor as a small portion of their international portfolio.”

Before plunging into emerging markets, investors should know how much exposure they already have, since many foreign large cap funds have around ten percent invested in emerging markets, while some foreign small cap fund and domestic funds have smaller chunks of international exposure, Rocco says.

While broad-based emerging market funds have done well in recent months, with gains approaching triple digits since the market bottom in early March, emerging markets are very volatile and those kind of gains are not sustainable over the long term, Rocco says. In fact, Stan Luxenberg, Registered Rep. columnist, says Asian funds rank among the most volatile fund categories, especially compared to developing markets in the U.S. or Europe. In 2008, Pacific/Asia ex-Japan funds dropped 53.5 percent, according to Morningstar. But the region’s markets often soar in bull markets, Luxenberg says. During the decade ending August 2009, the average Asian fund returned an annual average of 9.8 percent, versus 0.8 percent on the S&P 500, according toLuxenberg.

For a relatively non-volatile choice, Luxenberg suggests Matthews Asian Growth & Income (MACSX), which dropped 31 percent in 2008, outdoing category peers by 21 percentage points. To limit risk, the fund keeps about 65 percent of assets in dividend-paying stocks, with most of the rest of the portfolio in corporate and convertible bonds. Stock holdings include Taiwan Semiconductor, a leading manufacturer.

A more aggressive selection is Wells Fargo Advantage Asia Pacific (SASPX), says Luxenberg. Portfolio manager Anthony Cragg favors solid companies that sell at discounts. To find bargains, he ranges widely over Asia, buying companies of all sizes. The fund currently has 21 percent of its assets in Japanese stocks, with sizable stakes in China, South Korea and Hong Kong. When he can’t find any tempting new investments, Cragg holds cash. His fund had 17 percent of assets in cash during the fourth quarter of 2007,which Luxenberg says helped the fund limit losses in the downturn.

If you would prefer to own smaller fast-growing companies, Luxenberg suggests Fidelity Pacific Basin (FPBFX). With markets soaring during the first eight months of this year, the fund returned 45 percent through the end of August, close to 20 percentage points ahead of its category peers. But the fund crashed during the downturn in 2008, losing 55.8 percent. The fund has big stakes in China and other emerging markets. If those continue to climb, Luxenberg says this Fidelity fund should do well.

For those who would rather not play narrow geographic regions with their country- and sector-specific risk, Rocco says a broad-based emerging market fund is the way to go, since the manager has the freedom to invest throughout the developing world. Rocco suggests T. Rowe Price Emerging Market Fund Stock (PRMSX) and American Funds New World Funds, which he represent a more conservative way to play emerging markets. Both funds invest in stocks and bonds and have exposure to companies with significant operations in the developing world.