Frontier Markets

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)

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.


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?

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.

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!

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@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.

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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.

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:

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


BTW. How do you calculate P/E for a country? How do you know it’s cheap? And what other financial ratios do you analyse to make a decision about buy/sell? To put it short - what’s your strategy? :wink:

I don’t, MSCI does it monthly for every index, for example look at MSCI Russia

It’s a weighted P/E of all companies making up the index. It so happens that also the P/B ratio is <1 for this index and average dividend yield is very high.

The concentration in energy sector and political risk are the obvious counteraguments here and some countries historically trade at lower-than-average P/Es for several reasons.

This document (updated monthly) helps to get a reasonable overview of long term P/Es

My strategy? I generally look for cheap stuff which makes me a value investor, but I feel more confident doing this on whole-country level instead of single stock.

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Thanks for explaining. And as a rule of thumb at what point do you buy and what point do you sell? How you determine that something is cheap enough? And how long do you keep this until sell?

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This is a difficult question and I don’t have an easy answer. I generally found myself reading and learning much more about geopolitics since I started investing this way. I generally focus on countries in economic trouble, but am eager to buy any bad news, as markets tend to overreact.

I managed to pick my entry points for Turkey (ITKY) and China (CNYA) at the best possible moment in 2018. Argentina (ARGT) and Greece (GREK) in 2019 were also nice picks and I’m fairly confident they will continue to do OK.

I wasn’t so succesful with Nigeria (NGE) and Pakistan (PAK) which continue to decline although this is somehow cushioned by dividend payouts and I know I’m buying at a discount (P/E <5 ; P/B <1). I add to my positions as they decline to keep a fixed allocation in dollar terms. I expect to be buying more PAK soon, since the news about the conflict in Kashmir just hit …

I bought Mexico (EWW) on the same day Trump threatened them with tarrifs based on border security disputes. A week later this was resolved and the recovery came even faster than anticipated.

Of other factors, MSCI announced inclusion of Kuwait into EM in June 2019. The KUW8 ETF has been doing very nicely since then and hopefully will until the inclusion is concluded in Nov 2020. The same happend on MSCI upgrade of Saudi Arabia.

I also look at the charts for long term trends or all-time lows.

I know this is not much of an answer and probably not much different from investing in single companies, but I find following geopolitics much more rewarding than looking at financial statements.


I was more curious whether you hit the button based on gut feelings or rather on some emotion-less algorithmic approach.

Definately not algorithmic, but not entirely detached from facts. Gut feelings are not bad. I keep notes and I would be more profitable if I acted on more of my gut feelings …

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I’m not saying it’s bad. Intuition can be very effective, if you have the knowledge, skills and character. The problem is I don’t have any of these things, that’s why I’m looking for more “dumb” and less time-consuming approach. I guess that would be overweighting EMs ex China and India + perhaps overweighting EM Small Caps.

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Do you follow this strategy with your whole portfolio?
Also, how many country ETFs do you buy at the same time?

No. Currently 60% is in All-World (VTI+VEA+VWO) but my target range is 65-70%.

For the remaining part of my portfolio I hold some single stocks (not much) and the following countries: Greece, Pakistan, Nigeria, Colombia, Mexico, Brazil, Russia, Indonesia, Philippines, Thailand, Turkey, China A (domestic market).

Additionally I have relatively large positions in DX2Z (Select Frontier, top 3 countries are Kuwait, Argentina, Vietnam) and XGLF (MSCI GCC Gulf, top 3 countries are Saudi Arabia, Quatar, UAE).

On every monthly rebalancing I see my ACWI percentage decline slightly which kind of proves my strategy works as of now.

I will buy additional shares when my target allocation is =<90% and sell at >=120%.


And for the countries which ETFs are you using?

Look here:

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