Investing in Frontier Markets: Opportunity, Risk and Role in an Investment Portfolio

CHAPTER 10

Different Ways to Invest in Frontier Markets: ETFs, ADRs, Local Stocks and Closed-end Mutual Funds

Every financial investment has at least four major aspects requiring careful consideration: its place in a portfolio, its design features, its profitability and its accessibility. We have set out the investment case for frontier markets as an asset class and described the markets—and market opportunities—in detail in earlier chapters.

We believe that frontier markets, the “emerging” emerging markets, should form part of a well-rounded portfolio. Frontier markets will likely repeat the excellent performance of the developing economies that have doubled investors' money over the last decade.

However, even if frontier markets do not fully replicate that performance, their low correlation with both developed and emerging markets and low valuations mean that they should form part of any equity portfolio, as they will reduce its overall volatility and produce good absolute levels of return.

Given that concept, as a professional advisor working with institutional or retail clients you may ask, “What is the best way to invest in frontier markets?” In this chapter, we answer this question with definite opinions on the most and least advisable approaches.

Let us start in reverse order and save our preferred method of gaining exposure until the end of the chapter. Looking first at the methods available in a developed economy such as North America, Western Europe or Australasia, and ...