Frontier Markets


#1

Is anyone here investing in Frontier Markets (countries too small to be classified as EM)? Frontier markets make up approximately 6% of world GDP and comprise 1% of world stock market capitalization - so it means in my world market-cap weighted portfolio, they will take 1%, but still, it’s a nice addition to the wild ride of EM that can increase the risk/return over time. There are two ETFs covering this asset allocation, but the one that seems to be better diversified is iShares MSCI Frontier 100 ETF (119 holdings and 0.79 ER)


Need portfolio advice
#2

Not exicted to invest in something that’s almost half full of banks in some weird countries, I don’t trust even american banks. pass!

One thing I don’t understand - why are people so goddamn fixated on a stock’s listing country? I care a lot more about where companies actually do business, not where they are registered. You really think people in these countries don’t buy Philipp Morris’ cigarettes or Nestle’s bottled water or Facebook/Google’s ads or import some machinery from Germany just because the money ultimately goes abroad? HQ in a democratic country rather than some dictatorship with dysfunctional courts is actually a plus to me.

Besides, you say it’s only 1% of world market cap, so it’s not really gonna move your needle if you invest according to market cap, i can sleep comfortable without it. More than comfortable considering what i missed were mostly banks.


Non-Relevance of ETF Quotation Currency
#3

No all of them are weird: ok, Argentina is a bit weird, but still, I think worth keeping in the portfolio. :slight_smile:

From this point of view entire EM doesn’t make sense because Indians and Chinese also eat McDonlands and smoke Malboro. Besides if you check top holdings, most of it, are financial/telco companies operating in these countries.

I’m not sure about it - it has low correlation with rest of the EM and it had returns from -54% to +72%, so I think it can move the needle over time. It contains, for instance, Persian Gulf countries, that are changing dramatically lately and some of them are privatising and making public some huge companies. Why not having small percentage of that in the portfolio? Or Vietnam - some people say it will be the next Asian tiger. Why not keeping a little bit of it in the portfolio?


#4

I’m asking because for me it seems like this is just missing 10% of the EM, that could complement and diversify my world-cap portfolio.


#5

Just a thought: FM are not a fixed composition. Once the markets grow and mature, they get moved to EM and then DM. I don’t have a full list of changes, but what comes to mind:

  • FTSE moved South Korea from EM to DM
  • FTSE moved Poland from EM to DM in 2018
  • MSCI moved Greece from DM to EM (!!!) in 2013
  • MSCI moved Pakistan from FM to EM in 2016

In other words, if your FM country is doing too well, your FM ETF will have to sell it, and your EM ETF will have to buy it, and you will have to rebalance.

EDIT: I found this cool FTSE paper on how they classify countries and why whey will classify Poland as developed. They don’t really follow the size of the market as much as its features (is it modern enough, stable enough). They also listed their changes in classification in recent years. That’s a big list!


#6

@1000000CHF @Bojack

I thought about starting a new thread, but since this is already here, let’s revive.

How have your views evolved over time?

I’ve recently bought some shares in Global X Argentina (ARGT). It’s done well recently beating the benchmark which would be MSCI Frontier Markets. It’s also not too heavy on financials with “only” 25% of asset in this sector.

Interesting to know, perhaps, is that Argentina will be requalified from FM to EM by MSCI starting June 2019. This is perhaps the reason behind recent appreciation.

Other weird countries I’m watching (but not yet investing) are Nigeria and Pakistan. With P/E’s <8 they look extremely cheap.
https://www.msci.com/documents/10199/9ab62f4d-7fcd-43cb-8ea8-00d7355855bd
https://www.msci.com/documents/10199/683b6777-69bd-4adf-a2d6-1e7ff9df7deb


#7

I like your strategy even more than the plain FR index fund, but I’m way too busy/lazy for that. It seems like a lot of research and continues monitoring of these markets.


#8

This is nothing but Value investing, I guess. Just on country level instead of stock level. I’d gladly invest in Venezuela now if there was an ETF for it :-).

And it doens’t take much effort to monitor global stock markets. Every day I spend a minute or two looking at:
https://www.bloomberg.com/markets/stocks

Quite easy to spot trend reversals there. Speaking of which, I probably should put Colombia on my watch list as well.