Salient to Investors:
Stocks in the least-developed markets are producing annual returns at least 7 percent higher than mutual fund managers around the world. Carlos von Hardenberg at Franklin Templeton Investments said their companies are overlooked and under-owned.
Sam Vecht at BlackRock Frontiers Investment Trust is much more positive on frontier countries than emerging nations.
The MSCI frontier index is at 11.6 times reported profits, a 27 percent discount to the MSCI All-Country index versus a premium in June 2011 – the frontier index’s dividend yield and projected earnings growth are both one percent higher than the emerging-market gauge.
Euromonitor Intl says consumer spending in frontier nations will rise 9.2 percent on average in 2013 versus 8.3 percent pace in emerging markets.
Rami Sidani at Schroder Investment Mgmt said frontier markets offer great growth prospects and are tomorrow’s emerging markets – their smaller volatility and lower correlations offer returns less tied to fluctuations in global markets. Sidani said institutional investors have $15 billion in frontier countries. EPFR Global said global emerging market funds have versus $330 billion.
The MSCI frontier index’s 50-day historical volatility is 5 and correlation with the All-Country index is 0.4 versus 8.6 and 0.6 for the emerging index. The 50 biggest companies in the MSCI frontier index average 9 analyst recommendations, versus 29 for the MSCI emerging market index, and 33 for the S&P 500.
Hans-Henrik Skov at BankInvest New Emerging Markets Equities Fund said what happens in the US has a lesser impact on how many beers the average guy in Kenya is drinking.
Thomas Vester Nielsen at Lloyd George Mgmt Fund said investors can reduce risk by making long-term investments and avoiding countries with a high chance of government intervention. Nielson said one advantage of smaller markets is there are fewer money managers vying for access to politicians and company executives, making it easier to visit with officials and gauge government policy and corporate strategy.
Timothy Drinkall at Morgan Stanley Investment Mgmt said it’s very early days for pension funds to allocate to frontier markets because they are relatively small and illiquid.
Nigeria was Mark Mobius’s biggest country holding as of Dec. 31 in the Templeton frontier fund.
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