Emerging Markets Plus: The Plus of Frontier Markets

Emerging Markets Plus blends frontier and emerging markets, and it may produce a significantly more efficient portfolio than emerging markets alone. This paper examines actual results of the MSCI Emerging and Frontier Markets Indexes over the mid-2014 to mid-2024 period. It finds that at an allocation of 25% could reduce risk by more than five times any sacrifice in return. An important feature favoring frontier markets is the index volatility that has averaged 3% below that of emerging markets, due to the low inter-country correlation among individual frontier markets. Another consideration is that both frontier markets and emerging markets are inefficient, so active management can often improve upon the index returns used in this paper. The main thing about frontier markets for international investors is their compelling diversification benefit. In addition, however, I like them for their economic growth, neglect, cheap valuation, positive demographics and wonderful people.