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Frontier Mkts Hotspot or Not

edited February 2014 in Fund Discussions
It appears going forward, frontier markets are the "new" EM. I currently own WAFMX and previously held TRAMX.

I always keep my eyes open to new and better alternatives. Not meaning performance chasing, but improving risk/reward, volatiltiy, etc.

I came across a handful of other FM OEF's, I would appreciate any thoughts, opinions and/or suggestions.

Also, how do you evaluate some of these funds since many have not been around very long (i.e. <3/5 years)??

The following MF are the most intriquing:


HLMOX/HLFMX (Harding Louver)

MFMPX/MFMIX (Morgan Stanley)

*** One item I noticed about these funds relative to WAFMX is that the are more heavily invested in the Middle East and less invested in Africa. Does anyone have a take on this, as well?

Edit: <i>What do you think about pairing WAFMX with another FM funds, such as the one's I mentioned? Not because of performance, but diversification, if you will.

The portfolio's of HSFAX/HSFIX, HLMOX/HLFMX and MFMPX/MFMIX are quite different from WAFMX, such as in where they invest and avg. mkt cap.

I'm viewing this as analogous to holding a Foriegn LV and a Foriegn SG fund. They may be in the same markets, but differ in many other ways.

Is this "fund" hoarding or does it make sense?

Thank you,


I also posted this on M*


  • I know there are many savvy and learned investors on this forum. I was hoping to get some insightful comments and/or suggestions.

    There just doesn't seem to be a lot of good info on FM funds, outside of HLMOX/HLFMX. This is why I posted.

    Any input would be greatly appreciated!! Thank you!!

  • I have owned WAFMX since close to inception and have owned HLMOX for about 9 months or so. I will just say that they have been among my steadiest and less volatile funds. I know that sounds surprising for a category that would seem the opposite, but it has been true, at least since I have owned the funds. I have been very happy with both funds.
  • Reply to @mcmarasco: For your information, I'm relinking a Barron's article from 2/9/14 in case you missed. A couple of ETFs for you to consider. ETF & MSF
  • edited February 2014
    Matt, WAFMX is really heavy in consumer stocks, mainly staples, so I think your idea of diversifying within FMs is reasonable if you want to own more FMs. The only other FM fund I've looked at is MFMPX, and it's heavy M-East and banks, so it might work for that approach.

    The catch with MFMPX, as another poster (slips my mind who, sorry) mentioned on a different thread recently, is that Qatar & UAE are going out of the FM index and into EM this year, and those two are more than a third of the holdings of MFMPX -- so the question is what effect the change will have on the portfolio & the approach of what's been a successful fund so far.

    I couldn't determine from their fund materials how tightly they're committed to index weights; they did have a line on a fact sheet about sector %s not deviating too far from index weight, but the prospectus doesn't even mention the index, and says they can hold EMs too.

    I own WAFMX too & have been looking at MEASX as a diversifying, part EM, part FM investment in Asia through a company I'm more familiar with. (Matthews doesn't do the Middle East, FWIW.)

    Good luck, AJ

  • You may look at the recent M* interview with the manager of WAFMX:
  • I recently spoke to someone in the HSBC office in New York about their Frontier Markets fund and he made quite a compelling case. A few things I took away . . .
    --Although the fund has only been open in the US since 2011, it was launched as an offshore fund in 2008 with the same managers and portfolio (HSBC GIF Frontier Markets) and has had an excellent record relative to EM funds.
    --Interestingly, it has only a .65 correlation with overall EMs and .56 with developed markets. While a lot of EM funds are heavy in East Asia, this one is only 20% invested there, having a strong presence in oil-rich Gulf markets.
    --Because this bank has such a strong presence in the frontier market countries, its managers have a unique advantage in accessing intelligence about firms and markets.
    --Although the fund is in immature markets, it tends to invest in firms engaged in infrastructure development which have strong liquidity.
    --The fund is now at about $500m and they intend to close it around $600m.

    I'm hoping that I'll be able to access it through my 401k plan and thereby avoid the expensive load.
  • With regard to the point made about Qatar and the UAE exiting the MSCI FM index--This HSBC fund does not use that index as a reference but uses a bespoke version with includes smaller EM countries along with FMs. So, the exit of these countries will not be an issue for this fund.
  • edited February 2014
    According to HSBC website (and M*), as of 1/31/2014 their fund is not $500m, but only $107m:

    HLMOX is available at Schwab no load, MFMPX is available at Fidelity no load.

    One potential problem with these funds is that many of them were launched after 2009. Some of them, which were launched earlier, still did not return to their pre-crisis NAV, or returning to these NAV only now. I am invested in WAFMX and consider other funds of this type, so this is a warning to everyone, me included.
  • Thanks for the note, Finder. They were talking of the offshore and the US funds together when they talked of closing at $500m.
  • THANK YOU everyone for your input and thoughts!! The links were very helpful as well, thanks!

    The HSBS and MS funds are very intriguing as a compliment to WAFMX. Does any one know when Qatar and the UAE are to be removed from the index.

    Ginko, thank you for the inside info on the HSBC fund! I am more intrigued by it now and will have to take a much closer look into it!

    Also, as Ginko mentioned, the HSBC fund should be minimally impacted, but others may be more adversely affected.

    Is it worth worrying about? Or simply let the managers do their "thing"??

    Keep the comments coming!!

  • Reply to @mcmarasco: Here is the link from Ted's original posting concerning the rebalance and "graduation".It's a good read. An excerpt.
    "The kicker here is that, in May, both Qatar and the United Arab Emirates will graduate from “frontier” to “emerging markets” in the MSCI system. As a result, they will be kicked out of FM. That’s 31 percent of the portfolio and the biggest driver of recent returns."

    Ted February 12 Flag
  • Great article TSP_Transfer (via Ted), that's what I was looking for, thanks!

    Looks like it is a huge impact to the index; some of the country weightings really jump. You would think there must be some other FM countries worthly enough to make the index to help keep the relative weightings more as they are today.

    How might this graduation affect EM funds? Will some now invest in Qatar and the UAE and potentially see higher returns???

    What should FM investors do now, wait until after May? Continue as you are today?

    Just some rhetorical questions, I guess.

    Thanks again,

  • Are frontier market funds just commodity or energy funds? Are they really a play on the explosive growth of the pent up demand of a youthful population with a government structure stable enough to harness that growth?
  • How can someone get into the HSBC fund A class shares (HSFAX) without paying the front load? Or get into the institutional class (HSFIX) without investing $1M?
  • I don't spend much time noting what countries are in or out of a particular index. What you need in a FM fund is great management. My experience is that a truly talented manager can make or break an EM fund. And you also need someone who spends a lot of time 'on the ground' in the FM countries, making sure the companies actually exist and meeting the folks who run those companies. Laura Geritz has proved herself with WAEMX, and WAFMX looks to be every bit as well-run. Expenses are always a consideration, but FM funds, higher expenses go with the territory of thinly-traded stocks and small markets.
  • Reply to @AMatMFO: I asked my 401k plan provider to add HSFAX to our roster and they have just confirmed that it has been added. Even though it will be the A class of shares (HSFAX), it will be the load-waived version.
  • Reply to @Ginko: Who is your 401K provider? Schwab, TD Ameritrade? These 2 have load-waived funds, but not this one.
  • edited February 2014
    Most of my FM money are in WAFMX, but it is gradually getting VERY BIG, growing above $1B. If there is a crisis and the manager would need to unload her stocks in FM, she may have a problem. Also, recently momentum was on the side of HSFAX and MFMIX.
  • Reply to @TSP_Transfer:

    That's certainly a legitimate concern for some funds. However, not all FM funds restrict themselves only to investing in countries that are in the MSCI FM Index.

    There is a second index which is more inclusive--the MSCI FEM Capped Index--which is currently comprised of 25 frontier market plus 5 of the smallest emerging markets (and this is before Qatar and the UAE leave the FM Index.)

    As I mentioned above, there is at least one FM fund that uses this latter index as a benchmark.
  • Reply to @AMatMFO:

    My 401k plan provider is a smaller company, however, I took a look at the Morningstar Purchase page for HSFAX,lw and it shows it's available through a number of providers. At Schwab, for example, they says it's even available no load and NTF in their One Source retail network.
  • Reply to @Ginko: Thanks. I had tried placing an order for HSFAX at Schwab and I got "We cannot process your order because shares for this fund are only available to institutional customers". I will call them to see if this is a web site issue.
  • AMatMFO, are you saying you don't have a spare $1m to invest in HSFIX?

    You're right, there is no LW on the "A" shares, so that does make it a little difficult to invest in. I called FIDO and asked them to investigate whether they can negotiate a LW status. I'm waiting for a response.

    Beautiful pix Ted!!!

    finder, I'm a big fan of the Wasatch group, that is why I have invested in WAFMX. But I'm still interested in "diversifying" into another FM fund. There are enough differences among the FM funds, I think, to warrant investing in another fund.

    Hogan, point well taken, is that a rhetorical question or do you believe that to be true?

    BobC, you are spot on, I totally agree. I put a LOT of emphasis on management when performing my DD. It has worked fairly well so far! Thank you for your thoughts!

    Appreciate everyone's input! Please keep the discussion going. I respect and heed all opinions, even though I may not always agree; I often learn from them either way!

  • I just talked to a Schwab representative at length about HSFAX. He was also surprised that this fund is marked as OneSource and NTF, but is only available to "institutional customers" - the customers that "have an adviser". He asked me to call tomorrow as their mutual fund support team is not available today (markets are closed today 2/17 due to the Presidents Day holiday).
  • Reply to @finder: Last week I exchanged some of my WAFMX into MFMPX shares for some of the reasons being discussed here.Ms Garitz is now responsible as manager or co-manager of over $3 bill in fund assets in three different funds.
    Here are some snippets from Morgan Stanley's Fact Sheet and Investment Strategy Profile .It would seem their investment universe is very fluid as are the actual indexes .
    From Morgan Stanley(emphasis added)
    The team allocates the portfolio’s assets among frontier emerging markets based on relative
    economic, political and social fundamentals, stock valuations and investor sentiment with bottom-up
    fundamental analysis. Under normal circumstances, at least 80% of the portfolio’s assets will be
    invested in equity securities of companies operating in frontier emerging-market countries. The
    portfolio may also invest in emerging-market securities.
    The equity securities in which the portfolio
    may primarily invest include common and preferred stocks, convertible securities, rights, warrants,
    depositary receipts, limited partnership interests and other specialty securities having equity features.
    The portfolio may hold or have exposure to equity securities of companies of any size, including small-
    and medium-capitalization companies, and to companies in any industry or sector. The portfolio has a
    fundamental policy of investing 25% or more of its assets in the banking industry, which cannot be
    changed without shareholder approval
    Investment Philosophy
    The Frontier Emerging Markets Equity team believes that frontier markets are
    in various stages of economic development—but generally lag the “mainstream”
    emerging markets in terms of economic and financial market reform, and, in
    many cases, are overlooked by many foreign investors. Their equity market
    performance correlation with other markets has been historically low because
    of their limited integration with the rest of the world’s financial markets, thus
    providing potential diversification benefits.1
    The strategy’s investment team defines a frontier emerging market as a developing
    country beyond the generally accepted 26 frontier emerging market countries
    within the MSCI Frontier Markets index.

    The team regards these “non-core” emerging markets as attractive new investment
    destinations with unrealized economic potential
  • Reply to @AMatMFO: I'll bet you Chuck is part of the support team

    Talk To Chuck
  • As a partially frontier markets peppered by emerging micro caps (or emerging micro cap peppered by frontier markets), one may consider the newcomer GPEOX/GPEIX, which opened very recently and may close very soon. This is not a recommendation, just an info.
  • I'll watch it, keep an eye out.
  • edited February 2014
    "The strategy’s investment team defines a frontier emerging market as a developing
    country beyond the generally accepted 26 frontier emerging market countries
    within the MSCI Frontier Markets index."

    Okay, maybe the coffee hasn't kicked in yet but are they talking about a different level of frontier markets from the one mentioned?

    Also, with Qatar moving from frontier status to emerging, does anyone see this as positive for MAPTX or MEASX since the Middle East is included in their focus?

    Edit: Disregard my question. The coffee has not kicked in yet. I need a refresher course in geography. Looking at Matthews map, I thought the ME was included but that is India.
  • AMatMFO, maybe if we ask, then we shall receive???

    It will interesting to hear back from these brokerage houses!! We can only hope.

    finder, thank you for the info. GPEOX/GPEIX is a very intriquing fund, in fact, the shop itself, looks like a winner. Those former Wasatch managers are top-notch.

    It looks like GPEOX/GPEIX has just a smidgeon of FM, although the strategy does allow for much more FM. It certian is worth watching!

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