The MSCI Frontier Markets Index, during its short life, has outperformed the MSCI Emerging Markets Index and China (FXI or GCX), India (IIF or IFN), Brazil (EWZ) and Russia (RSX) individually.

The frontier market category is only recently formalized by the major index companies, and there are few frontier funds. T.Rowe Price offers a frontier markets fund relating to the Middle East and Africa (TRAMX) which we find more interesting than some others at this time.

We began discussing frontier markets late in 2007, after MSCI and S&P launched their frontier market indices. The availability of indices will surely increase related funds availability. Investors would do well to begin to familiarize themselves with frontier market investment issues.

Those markets are quite small, and thinly traded with the potential for extreme volatility and illiquidity when you need it most. Nonetheless, for some investors, a dash of frontier market exposure might be like adding some Tabasco sauce to a dish for extra flavor and a bit of kick.

Richard Shaw
QVM Group LLC

Disclosure: author has a position in TRAMX

For those of you who separate your equity class into US domestic, and foreign (world ex US); or into US domestic, non-US developed and non-US emerging countries; here are 1-yr, 5-yr, 10-yr and 20-yr charts of the relative performance of each class.

ETFs that you might use as proxies for those classes are:

• VTI, SPY or IWM for US domestc
• VEU for world excluding US (includes Canada)
• EFA for non-US developed (excludes Canada)
• EEM or VWO for non-US emerging (does not include frontier markets)
• If you want Canada in the mix, you might use EWC to complement EFA.

Richard Shaw
QVM Group LLC

There is a tendency to paint situations with a broad brush that sometimes obscures facts and opportunities. Within the developed and the emerging markets there are countries doing well and countries doing poorly.

The press is focused on declines in China and India. The losses are large, but not in context of their longer term moves, and those moves should not obscure this year’s YTD winners, such as Chile, Taiwan and Thailand.

Similarly, articles about losses in Germany, should not blind investors to YTD winners, such as Switzerland, Belgium and Sweden.

The chart shows the best three and worst three countries by YTD stock returns in the developed and emerging markets. Each list is compared to the US market as a reference point for US investors.

One or two ETFs or CEFs that may serve as a proxies for each country is are provided in the chart.

click image to enlarge

Richard Shaw
QVM Group LLC