AyG
Crazy Mango Extraordinaire
Posts: 5,871
Likes: 4,555
|
Post by AyG on Apr 25, 2016 13:04:18 GMT 7
I have a small allocation to frontier markets through an investment trust. It invests in places as diverse as Botswana, Qatar, Argentina, Bangladesh and Romania. Its performance has been modest - 5 years annualised is 2.9%/year. My original thinking was along the lines that frontier markets could follow the emerging markets story and massively outperform developed markets (not that emerging markets have done that recently). I'm now beginning to have doubts, thinking that these countries are all so different from each other. One stock market may do well, whilst others won't. They're most unlikely to go up together. Some may not go up at all. This will detract from the investment performance.
Anyway, I was wondering what others though. Is there a good case for investing in broad, frontier markets trusts/funds? Or is it all marketing hype?
|
|
|
Post by rgs2001uk on Apr 25, 2016 16:38:41 GMT 7
Personally for me, its marketing hype, they want to have their cake and eat it. Something that invests in Qatar might rock my boat. Botswana, know nothing about the place, all I know, my money aint headed there. Argentina, a basket case. Bangaldesh, err no thanks. Romania, no thanks.
|
|
|
Post by Fletchsmile on Apr 26, 2016 13:26:09 GMT 7
I have a small allocation to frontier markets through an investment trust. It invests in places as diverse as Botswana, Qatar, Argentina, Bangladesh and Romania. Its performance has been modest - 5 years annualised is 2.9%/year. My original thinking was along the lines that frontier markets could follow the emerging markets story and massively outperform developed markets (not that emerging markets have done that recently). I'm now beginning to have doubts, thinking that these countries are all so different from each other. One stock market may do well, whilst others won't. They're most unlikely to go up together. Some may not go up at all. This will detract from the investment performance. Anyway, I was wondering what others though. Is there a good case for investing in broad, frontier markets trusts/funds? Or is it all marketing hype? I've similar thoughts: small allocation, for the potential of becoming the next EMs, as well as diversification. In the last few years though they have broadly followed the trend for EMs in being out of favour. I think someone needs to be patient. EMs have also had a tough time in the last few years. At the start I was mindful of the way bad markets may cancel out good markets and that they shouldn't all be lumped together. Hence I tried single country funds, eg Vietnam as well as regional funds, eg MENA. This relies on you being active to move the markets, which isn't ideal for frontier markets in my view. Hence, I really want a fund manager that will sort the wheat from the chaff, and will take concentrated positions based on which markets they think the value is. I dislike the idea of an ETF or fund which is so spread across too many markets as they are not all the same as you highlight. I like Templeton Frontier Markets for this reason. It has a total of 63 holdings, with the top 10 all being 3.X%. More importantly for me is the geographic concentration: Top 5 15% in Vietnam a country I have a strong belief in coming years having experienced first hand life and working there 10.7% Kuwait 7.6% Pakistan 7.4% Nigeria 5.9% Sri Lanka That's nearly half the fund in 5 countries. Performance has been weak and is only marginally positive over the last 5 years. What I think there though is that EMs, frontier markets etc have all suffered in recent years with pretty indiscriminate sell offs. It's been pretty much risk-off in these areas for the last year or two so everything sold off regardless When things do turn around, I think the quality of the fund management house, and the concentration, in countries I think have value like Vietnam will come into their own. By the very nature though, these are frontier markets, at very early stages of development so patience is in order and its not going to happen overnight. Timing them also will be very difficult. So while there's a part of me thinks why bother? Just go for safer more developed and even EMs, as it's the average overall return my portfolio that counts. The other part of me still has some belief in the story and concept to warrant a small % of holdings. The other thing I do is increase holdings when things start moving. Start small and then add. Hence if and when they do take off, I want some experience of them and some skin in the game. I find if I don't actually hold something, no matter how small the holding, I'm less disciplined about keeping track of it.
|
|