Prudent Ways to Invest in Frontier Markets (WSJ)

Frontier market economies are growing faster than emerging markets ones but investors need to keep some risk considerations in mind according to Patricia Oey, a senior analyst with Morningstar Inc who wrote a paper in December titled: “Frontier Markets Begin to Emerge.” A recent Wall Street Journal article interviewed Ms. Oey and summarized her frontier market investing advice along with the advise of others as the following:

Actively Managed Funds Usually Outperform Benchmarks. Actively managed funds, by and large, “consistently outperform the MSCI Frontier Index,” according to Ms. Oey while Babatunde Ojo, a portfolio manager of the Harding Loevner fund, was quoted as saying:

“Countries are always very volatile because of macroeconomic and political risks…. As an active manager you can see these trends before they happen and try to be underweight at the time.”

Look for a Track Record. Ms. Oey was quoted as saying:

“Out of the 29 frontier funds [in the U.S.], only seven went through the financial crisis.”

Country Calls Can be Tricky. The WSJ noted how Franklin Templeton’s Mark Mobius used to be invested in Venezuela but got out after Hugo Chávez came to power. On the other hand, the Templeton Frontier fund stayed invested in Argentina which, according to Mobius, “was not a good call in the early days of this current administration.” However:

“Despite the very bad political environment, the stock market has done well.”

To read the whole article, A ‘Frontier’ Markets Survival Guide, go to the website of the Wall Street Journal.

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