The Next Investing Frontier?

Countries at an extremely early stage of development, such as Kenya, or markets that are relatively inaccessible, such as some Middle Eastern countries, are the focus of Cerulli’s latest report.  

Cerulli Associate’s latest issue of “The Cerulli Edge: Global Edition” examines frontier markets and evaluates the opportunities and challenges for asset managers in developing a product development strategy for these early-stage, yet potentially lucrative, markets.

Total flows into frontier market funds hit around US$2.9 billion in 2010, according to EPFR Global, but have slowed in 2011. However, recent launches have found a market: the BlackRock Frontier Markets investment trust raised $147 million at launch, the Schroders fund raised around $50 million, and a number of frontier funds have already closed to new business.

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“Many of these countries are commodities-driven and, as such, should be long-term beneficiaries of the high global demand for resources. If all goes to plan, they may follow the growth trajectory of many emerging markets with increased investment in infrastructure, which will in turn lead to higher wages and consumption growth, and ultimately, to the development of an industrialized economy,” comments Barbara Wall, Editor of Cerulli’s monthly global publication.

Cerulli says fund managers must gauge whether these fund flows are sufficient to make it worth their while, or whether they are better off focusing efforts on other growth opportunities, such as building a comprehensive emerging market fund range.

For investors seeking something new, these markets have the potential, as well as the risk premium associated with such new opportunities. Frontier markets are a tough sell, with no clear end market. They are expensive to run and require an experienced team. Nevertheless, there is a case for building a presence in high-growth markets of the future, Cerulli contends.

The report can be purchased through Cerulli Associates.

IMHO: “Free” Ride?

I was late to the NetFlix game—switching over only when my local Blockbuster closed its doors.   

Honestly, I was more than a little skeptical about paying to rent movies while spending most of the month waiting for the mail carrier to shuffle things back and forth. 

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Those fears (along with concerns drawn from early stories about people being sent movies at the bottom of their list, rather than the newer, hotter releases) have turned out to be mostly a non-issue.  More recently, I “discovered” the firm’s online library of free movies—and while I would say that most of them SHOULD be free (some you should be paid to sit through), I have enjoyed having that “extra” feature.  Sure, there were times when the Internet delivery speed wasn’t optimal, or when a movie would time out a third of the way through, but heck, it was free. 

Until, of course, NetFlix announced its recent change in pricing policy, a change that would cut the cost of the traditional movie rental service, but that would charge—and charge just as much—for the online movie library.  Overnight transforming what had been a nice, free, additional service into—well, a pricey, sometimes erratic, delivery system of older, “b” movies.  In short order, my willingness to calmly accept certain service “glitches” associated with a “free” service—well, let’s just say I have completely different expectations when I have to pay for it.

The retirement plan industry has long wondered—and worried—what participants would do if they knew how much they were paying for their 401(k)s.  Despite the fact that most of those fees have long been disclosed in fund prospectuses, we’re generally inclined to think that most participants haven’t actually read those disclosures—and those who have probably didn’t understand them.  That’s all supposed to change—or at least begin changing—with the participant-level fee disclosures slated to take hold next year.

Personally—and I know I’ll get some pushback on this—I’m disinclined to think it will make a big difference.  After all, if there’s one thing that participants have demonstrated over the years it’s a strong and consistent propensity to gloss over (if not glaze over) big, complicated, legalistic disclosures.  It doesn’t help that retirement plan fee calculations have become complicated structures, imbedded inside the net asset value of mutual funds, with revenue-sharing offsets of varying amounts (see “IMHO:  Out of Proportion), and most expressed in participant-unfriendly terms like “basis points,” or worse—“bips.” 

I’m not optimistic about the new regulated disclosures—too much data, and not enough information, IMHO.  That said, there are some new disclosures coming to market from the provider community ahead of those regulations that, IMHO, might actually help participants see—and understand—what they’re paying.   

Of course, for most, the concern is not that participants will now know how much they are paying—but that some may, perhaps for the first time, realize that they ARE paying.1

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1Consider that a survey published earlier this year by AARP indicated that only a quarter of 401(k) participants realize they are paying fees (see “Most 401(k) Participants Not Aware of Fees They Pay”). 

 

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