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Frontier markets – is it still an asset class?

With a string of countries having been promoted from frontier markets to emerging market status by index provider MSCI in recent years, investors need to ask themselves the question: are frontier markets still a viable asset class? And if they aren’t, is that actually a problem?


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A country like Pakistan returning to emerging market status doesn’t mean it has become a mainstream investment destination all of a sudden. “Pakistan is still considered a scary place by most people. I predict it will remain represented in our portfolio for a long time to come,” Brudenell adds. 

Goodbye benchmark

The Finnish asset manager Evli takes a more radical approach to the issue, which may be a way forward for other frontier fund managers as well. The Evli Emerging Frontier Fund invests, as its name suggests, in both frontier and emerging market securities and has no benchmark.    

“It’s a good question whether frontier markets actually deserve to be a separate asset class,” says Tanja Wennonen-Kärnä, senior portfolio manager at Evli’s private banking arm, who invests in the fund on behalf of her private clients.

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The attraction of frontier markets indeed is in the fact they are perceived as different and exotic, confirms Wennonen-Kärnä. “It’s an opportunistic play in a small part of the portfolio,” she says.

And, says Bankia’s Martin Sauto, an important part of the attraction of frontier markets also is the possibility for these markets to make a promotion to the larger emerging markets index, as Pakistan did last month. Such a promotion presumably leads to fresh inflows from both active and passive investors, driving up share prices.

By widening the mandate of a frontier fund to include emerging markets, one retains the benefits of frontier investing, while avoiding the pitfalls of excessive concentration, liquidity shortages, and having to reshuffle your allocation each time after each index review.

In practice, frontier market fund managers already have sizeable allocations to emerging markets, but most have so far failed to change the description on the tin according to this new reality.