Frontier Markets

Comments

• LLJB

  January 2015

  I'm a believer in frontier markets because I believe we will see better growth rates and I think there's a lot of room for businesses to grow, especially ones with more and more access to foreign capital, as the middle class grows substantially.
  
  MFMPX and HLMOX were historically very focused on the banks/financial institutions in the MIddle East and they did very well as UAE and Qatar ultimately moved from frontier to emerging market status with MSCI. I get the impression HLMOX has moved geographically since then but both are still heavily weighted towards financials.
  
  WAFMX is far more focused on consumer defensive based on what they say is a bet on the rising middle class and the local economies rather than being tied to the global financial markets and its done well since its inception also.
  
  According to Driehaus' registration statement and if I understand correctly, the fund should be available around February 14th. It carries a very large minimum investment so I'm not sure how accessible it will be for retail investors, but when I asked a few months ago I guess they weren't really able to answer and they just said more information would be on their website when the fund is available.
  
  MEASX also has a pretty big focus on frontier markets in Asia and they are also far more focused on consumer defensive and consumer cyclicals and sports a similarly high but slightly lower expense ratio than the others.
  
  I own both WAFMX and MEASX now and will be paying close attention to the Driehaus fund to see if their approach is one I like as well as whether there are any opportunities to invest much smaller amounts of money.
• Ultimate_Contrarian

  January 2015

  Thanks for your thoughts @LLJB. I too am a big believer in the market segment. Huge growth potential with an emerging middle class and starting from a low base. I really do consider them, as others do, as the "emerging emerging markets." It'll be interesting if/when Saudi Arabia opens up to foreign capital, though it may go directly to being classified as "frontier." Either way, it will probably be in the investible universe for these frontier markets managers as they also invest in the less established emerging markets countries.
  
  I understand your concerns with the concentration of MFMPX in financials, but from what I hear, Tim Drinkall is "the man" when it comes to frontier markets investing. I would definitely like to see the fund transition more into some other sectors though!
• mcmarasco

  January 2015

  I too am a believer in FM. Many believe that they are traditional EM of 20 years ago, so the growth potential has a huge upside. I have been moving some monies from my traditional EM funds into FM funds.
  
  I currently own MFMPX.lw, WAFMX and MEASX. I like the breadth and depth this combo gives me. Although they are relatively struggling in 2015, this is a LONG-TERM investment and high volatility is to be expected. Furthermore, high ER is the going rate, it cannot be avoided in this arena with mutual funds.
  
  I have not looked into the Dreihaus fund at this point, so I do not have any thoughts on it.
• Ultimate_Contrarian

  January 2015

  @mcmarasco three funds in the space? Just curious, how many equity funds do you own in total?
• mcmarasco

  January 2015

  UC, I know it seems a bit much in one space, but it is an unknown arena and there really isn't much overlap in them. They are in varied areas and have a mix of LC, MC and SC. I may at some point eliminate one, but I'm not yet comfortable enough with this space.
  
  To answer your question, I have a total of 12 equity funds. I have to admit, I have been thinking about reducing that number.
• Ultimate_Contrarian

  January 2015

  @mcmarasco, I get where you're coming from. Any thoughts on an ideal number of equity funds? I personally have 7 and I'm pretty comfortable with them (2 Global, 1 EM, 1 FM, 1 Int'l SC, 1 Int'l and 1 Domestic L/S). I don't want to be a victim of over-diversifying while paying active management fees. I'll admit, it is hard to refrain from purchasing new funds, especially some newer funds that are launched, but the team has a nice track record at a previous firm (i.e. Grandeur Peak).
• LLJB

  January 2015

  I think you'll find a lot of different opinions about the "ideal" number of funds and I think the real answer depends largely on your style. For instance, if one is mostly a passive investor, then I would think that person wouldn't need more than 5 funds/etfs. On the other hand, there can be good reasons for having more funds, such as not putting all your eggs in one basket, or because you want both growth and value within your global funds, for instance. Of course you have to worry about becoming a closet indexer at higher cost.
  
  I have 6 large cap funds to cover the world right now (1 of which is in the process of being eliminated so I won't discuss it). Three of those funds are very focused and have a total of 80 positions among them so I'm in no danger of becoming an indexer. These are mostly a 'not all my eggs in one basket' approach. Two others are specific bets that Europe and Japan will experience significant gains thanks to their central bank's QE program and they are hedged etfs. The last one would most likely be eliminated too because it is largely duplicated by one of the etfs (except without leverage), but its closed to new investors. Because of that I've reduced it to a very small position but I don't want to totally exit and at some point, maybe years from now, I'd expect I'll get out of the hedged etf and rotate back into the fund. Do I really need all of those? Maybe not, but I'm comfortable with my approach and I think everything has a clear purpose.
  
  Finally, there are some other cases where I have multiple funds doing essentially the same thing, but for example Grandeur Peak International Opportunities is hard closed, so I have another small-cap international fund that I like as well and use to balance my allocation when its needed. Again, maybe not totally necessary but I'm happy with the approach.
• mcmarasco

  January 2015

  UC, have to agree with LLJB that there really is no right answer for an "ideal" number of funds. I struggle to keep my portfolio from becoming a "closet" index.
  
  I normally do not have more than one or two funds in a given space, so as long as i'm satisfied with the "coverage" in that space (LC, MC, SC, sectors, etc.), I 'm good. I do, however, continue to keep my eyes open to improve my portfolio. If I come across a fund that better meets my needs, I will switch.
  
  I'm also a believer in new funds; they seem to out-perform more often than not in the early years. For example, FMIJX, although still a very yound fund, its 3-year relative performance is outstanding. Far outpacing its cat. and benchmark; I switched from TGVIX (Thorburg Int. val) 2 years ago and have not regretted one second.
  
  I will say that there are some reasons to have more than one fund in a given space beyond what I previously mentioned and one that I pay heed to is, to mitigate manager risk. There is something to be said for this approach, see FAIRX.
  
  Sorry I could not be more definitive, but it's a very difficult question to answer. You certainly do not want your portfolio to be an expensive "index" fund, but you have to be comfortable in the spaces that you are investing!
  
  Continued profitable investing!!
  
• Ultimate_Contrarian

  January 2015

  I like the way you think LLJB. I'm a young (mid-20s) investor and obviously have a long way to go until retirement so I am investing with a long-long-term investment horizon, something I think many investors struggle to do... For this reason, I definitely have a bias towards the smaller end of the market cap spectrum and emerging (frontier included) markets. In addition, I think too many focus on short-term bumps and volatility. I use these as times to add to positions where I believe the long-term potential is there.
• Ultimate_Contrarian

  January 2015

  Appreciate your thoughts @mcmarasco. I too am a big fan of FMIJX. Very sharp committee at FMI that has had success investing over the long-term, domestically. Given the investment approach the firm takes, I believe transitioning over to the international space is not going to be an issue (so far they have done this). Furthermore, the types of companies FMI invests in are more "global" by nature reducing my concern that the team can manage a successful international fund.
• Crash

  January 2015 edited January 2015

  I've been in TRP Africa/Middle East TRAMX for 2 and a half years, very pleased. It sank last year through the latter months, but still gave me good profit. Right now, it's less than 3% of my portfolio. I use its (so far) outsized returns to feed money into my core fund: PRWCX. LONG-term bet, for sure, and I'd not let it even get to be 5% of portfolio. The ER is not horrible, at 1.42%. Morningstar puts the fund in a crazy "non-category" category.