The Investment 2 Big Funds Don't Want You to Know About

Tony Sagami

2013 was great for stock investors. You may be richer today than you were a year ago, but investing is always a forward-looking endeavor.

As you shift your attention to how you'll keep your profits and make even more in 2014, I have one key question for you.

How much longer can the bull market in U.S. stocks last?

There are plenty of reasons for worry -- like stretched valuations, a sluggish economy, discouraging job market and inept politicians. It's enough to scare any investor.

The world, however, is a big place. If you're looking for alternatives to U.S. stocks, there are plenty of options, but I have four favorites ...

Japan: The Bank of Japan makes Ben Bernanke look like Ebenezer Scrooge. The BOJ has pledged to spend 60 trillion to 70 trillion yen a year on its quantitative easing program.

If you believe liquidity drives asset prices, Japan is definitely worth your consideration.

China: The Shanghai Composite Index dropped more than 7% in 2013, its third loss in the last four years. However, the Chinese government just unveiled its biggest reform package since the 1990s.

With Beijing allowing more private investment in state-controlled industries, 2014 could be great year for Chinese stock prices.

Australia: Australia is blessed with a wealth of natural resources and close proximity to resource-hungry China.

Additionally, Australian stocks are well off their 2013 highs. Some observers consider them a bargain at current prices.

The juiciest opportunity of all, however, may be someplace you've never considered ... frontier markets.

Frontier Markets: You've heard of emerging markets, but frontier markets offer even more opportunity.

What are frontier markets? I'm talking about Africa, the Middle East, Eastern Europe, and the least-developed parts of Asia and Latin America.

Frontier countries account for 22% of the world's population and 6% of its nominal GDP, yet only represent 3% of world market capitalization.

That disconnect between population and capitalization spells opportunity!

The smart institutional money is starting to pour into frontier markets. Investors have pulled out more than $2 billion from emerging markets funds last year but poured $1.5 billion into the frontier markets.

In fact, investment in frontier markets is so strong that Templeton closed its frontier market fund to new investors last year. Goldman Sachs (GS) closed its "Next 11" fund after cash gushed into it.

The reason for the enthusiasm is simple ...

Frontier markets are enjoying rapid economic growth. GDP in these nations grew an average 6.9% in 2012 and 7.2% in 2013.

Over the last 10 years, the GDP of frontier markets has grown from $1 trillion to $3 trillion, but their stock market values only increased from $600 to $700 billion.

Frontier markets are cheap; the Standard & Poor's Frontier Broad Market Index has a P/E ratio of just 8.6.

Sounds good, doesn't it?

What's the Best Way to Play
The Frontier Market Boom?

Investing in individual securities is tough if not impossible for most investors. ETFs are the only practical vehicle.

U.S. investors have four choices.

  • iShares MSCI Frontier Markets (FM)
  • Guggenheim Frontier Markets (FRN)
  • PowerShares MENA Frontier Countries (PMNA)
  • Global X Next Emerging & Frontier (EMFM)

I'm not suggesting you rush out and buy a frontier market ETF tomorrow morning. As always, timing is everything. I recommend that you wait for my buy signal in International ETF Trader.

However, in my view, there is no question about the huge frontier market opportunity. This group definitely deserves some of your attention and dollars.

Best wishes,

Tony Sagami


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Posted 01-13-2014 11:45 AM by Tony Sagami