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Hopefully WAFMX isn't one of those funds they consider dangerous from a structural perspective. Aside from the basic risk of investing in these markets, the fund seems reasonably well diversified across various countries and while mostly focused on consumer non-cyclical stocks it seems an appropriate way to benefit from the rising middle class in those countries.
From MFMPX Manager's 2nd Quarter Commentary The Middle East and North Africa continue to present political risk for the region, although conflicts in countries including Egypt and Syria have created opportunities for markets like such as the U.A.E. as locals look for safety and stability. The classification of the U.A.E. to Emerging Markets status was largely an additional tailwind for the market. In Saudi Arabia, where roughly 50% of the population is under the age of 30, the monarchy’s development programs appeared to be constructive including “Saudization,” the program focused on integrating local Saudis into the workforce. We believe higher Saudi employment will benefit the economy particularly in consumer discretionary spending and financials. We are more constructive on Kuwait following a recent visit as we think there is potential for the non-oil GDP growth to turn positive, we see more stability in the political environment of the economy and the Non-Performing Loan (NPL) cycle appears to have passed its peak. We see positive implications for equity markets in countries new leaders have come to office within previously troubled countries, particularly Pakistan, where Nawaz Sharif became Prime Minister in June of 2013. He has pledged to change the reputation of the country known for extremism and poverty to one known for good governance and prosperity. So far, he has shown to be effective and investors are responding in kind More on manager's background. http://citywireglobal.com/news/former-aa-rated-drinkall-leaves-gustavia/a288116 Morgan Stanley Home Page (a little hoop jumping !) http://www.morganstanley.com/msim/portal/site/US/template.PAGE/?msimPageTitle=productdetail&u=86bb14f4dc87daf33d3afb1051a9e009&fund=34211&src=vap
So why would FINRA issue an "alert" right now, as opposed to a month ago, six months ago, a year ago, etc.? The alert begs the question, and nothing in the very brief article gives a hint as to what the answer might be. Did they just now notice that frontier funds exist?
Here's a WSJ link with a bit more information and even a partial answer to the question about why now. I'm not sure I agree with the statement that one didn't know what was going to happen when Qatar and UAE left the Frontier 100 Index. I seem to remember reading a lot about what was going to happen and I think MSCI was pretty transparent as well.
I had never heard of FINRA before and this type of stuff makes me wish these guys aren't paid for with any of my money, which in some indirect way I'm sure they are.
Thanks for the more complete writeups, LLJB. From the WSJ piece, it does sound like the index reconfiguration (and piles of investor $ going into FM funds?) was the catalyst for the warning. The quote from the spokesperson, though, was about the attractive "yields" of FM funds, not capital gains, which is a hard argument to make when the 3 FM funds I see mentioned most often yield a whopping 0.16, 0.10, and 0.35%.
The piece also had a short 'graph about other recent FINRA warnings:
"With the alert, frontier funds are joining a list of products Finra warned investors about, namely Bitcoin, promissory notes, and high-yield certificate of deposits. Last month, Finra warned about stocks in companies that claim to provide products that protect against the spread of viruses or other harmful diseases like Ebola."
I was curious so googled FINRA + mortgage-backed to see if I could find an equivalent warning about subprime MBS in ~ '06-'07, but there were so many hits I didn't go through them all. It was FINRA, though, that brought the actions against Schwab for its essentially fraudulent YieldPlus fund and some of the big banks for breaking disclosure rules related to MBS after the crisis.
"With the UAE and Qatar gone from the MSCI Frontier Index, nearly half of the Index is made up of two dominant markets—Nigeria and Kuwait. Adding four other countries, Pakistan, Argentina, Morocco, and Kenya brings us to well over two thirds of the Frontier Index market cap in only six countries."
FINRA has 3400 employees per their website. I wonder what they really do?
Arbitration hearings, lengthy licensing exams, continuing education, investigations for the SEC, and lots and lots of spot inspections of every single broker-dealer or trader in America to make sure they're compliant with the massive amounts of rules FINRA employees write as well.
Comments
I've switched out of WAFMX to MFMPX.
http://performance.morningstar.com/fund/performance-return.action?t=MFMPX®ion=usa&culture=en-US
From MFMPX Manager's 2nd Quarter Commentary
The Middle East and North Africa continue to present political
risk for the region, although conflicts in countries including
Egypt and Syria have created opportunities for markets like
such as the U.A.E. as locals look for safety and stability. The
classification of the U.A.E. to Emerging Markets status was
largely an additional tailwind for the market. In Saudi Arabia,
where roughly 50% of the population is under the age of 30,
the monarchy’s development programs appeared to be
constructive including “Saudization,” the program focused on
integrating local Saudis into the workforce. We believe higher
Saudi employment will benefit the economy particularly in
consumer discretionary spending and financials. We are more
constructive on Kuwait following a recent visit as we think there
is potential for the non-oil GDP growth to turn positive, we see
more stability in the political environment of the economy and
the Non-Performing Loan (NPL) cycle appears to have passed
its peak.
We see positive implications for equity markets in countries
new leaders have come to office within previously troubled
countries, particularly Pakistan, where Nawaz Sharif became
Prime Minister in June of 2013. He has pledged to change the
reputation of the country known for extremism and poverty to
one known for good governance and prosperity. So far, he has
shown to be effective and investors are responding in kind
More on manager's background.
http://citywireglobal.com/news/former-aa-rated-drinkall-leaves-gustavia/a288116
Morgan Stanley Home Page (a little hoop jumping !)
http://www.morganstanley.com/msim/portal/site/US/template.PAGE/?msimPageTitle=productdetail&u=86bb14f4dc87daf33d3afb1051a9e009&fund=34211&src=vap
Here's a WSJ link with a bit more information and even a partial answer to the question about why now. I'm not sure I agree with the statement that one didn't know what was going to happen when Qatar and UAE left the Frontier 100 Index. I seem to remember reading a lot about what was going to happen and I think MSCI was pretty transparent as well.
I had never heard of FINRA before and this type of stuff makes me wish these guys aren't paid for with any of my money, which in some indirect way I'm sure they are.
And here's the actual alert itself.
The piece also had a short 'graph about other recent FINRA warnings:
"With the alert, frontier funds are joining a list of products Finra warned investors about, namely Bitcoin, promissory notes, and high-yield certificate of deposits. Last month, Finra warned about stocks in companies that claim to provide products that protect against the spread of viruses or other harmful diseases like Ebola."
I was curious so googled FINRA + mortgage-backed to see if I could find an equivalent warning about subprime MBS in ~ '06-'07, but there were so many hits I didn't go through them all. It was FINRA, though, that brought the actions against Schwab for its essentially fraudulent YieldPlus fund and some of the big banks for breaking disclosure rules related to MBS after the crisis.
FWIW, AJ
"With the UAE and Qatar gone from the MSCI Frontier Index, nearly half of the Index is made up of two dominant markets—Nigeria and Kuwait. Adding four other countries, Pakistan, Argentina, Morocco, and Kenya brings us to well over two thirds of the Frontier Index market cap in only six countries."