Futurists are an odd lot. Generally, they are authors, scientists, consultants and economists. What many people don’t know is that investors follow this philosophy as well. Their goal is to pick winning investment themes over the next decade or so.
Predicting markets and economic patterns is difficult over the next 20 years because there are many unknowns. After all, who will be President in 2016? What will tax laws be in 2020? Which of today’s deadly diseases will be cured in 2020? Which regions will experience wars by 2020? This is why futurism may be one of the more unique approaches in investing. ETFs are often called the mutual funds of the future and our goal is to meld a futurist outlook into an investing strategies.
A rule of long-term investing is that what investments feel good today, such as those in Chinese and Indian markets, may not generate returns tomorrow. Investors will face short-term pain for long-term gain. Futurists are always thinking beyond the next recession and the next boom behind it. This covers themes such as frontier markets, water, nanotech, advanced batteries, alternative energy, rare earths, and more.
Beyond Emerging Markets… Frontier Markets
If you are thinking about China or India over the next 10 to 20 years, there is plenty to consider. Both countries have grown exponentially as they became some of the world’s largest economies. Think post-Chindia and post-BRIC. “Frontier markets,” a term which has come up in recent years that goes beyond ’emerging markets’ is ‘frontier markets.’ These “frontier market” economies still have room for growth. Perhaps nothing illustrates this better than The NatGeo World Map at Night.
When it come to Africa and other Frontier Markets, there are three exchange-listed vehicles that we usually choose. All are generally more volatile than the broader market stock indexes in the developed world. Many frontier funds base performance off of the MSCI Emerging Markets Index rather than the S&P 500.
Morgan Stanley Frontier Emerging Market Funds, Inc. (NYSE: FFD) is a small closed-end fund with roughly $105 million in assets. This fund has diverse investments in banks, breweries, miners and utilities. At its semi-annual report, the fund listed holdings in 21 nations including Nigeria, Argentina, Bangladesh, U.A.E., Kenya, Kuwait, Pakistan, Serbia, Qatar, Lebanon and Greece. Average volume is light at just under 20,000 shares in a day and its 52-week range is $10.52 to $15.23.
Market Vectors Africa Index ETF (NYSE: AFK) from Van Eck seeks to track the performance of the Dow Jones Africa Titans 50 Index, which is full of companies that are headquartered in Africa or that generate the majority of their revenues in Africa. It holds banks, breweries, miners, utilities, and more. South Africa is where the largest number of the fund’s holdings are based. Assets under management were listed as $92 million in mid-November, its 52-week trading range is $26.60 to $34.88, and average daily volume is close to 25,000 shares per day.
iShares MSCI South Africa Index (NYSE: EZA) is an ETF that seeks to track the MSCI South Africa Index and it is one of the largest vehicles out there since South Africa has a more established markets and is more politically stable compared with other African nations. The fund invests in South African companies and has roughly $520 million in assets. It trades close to 400,000 shares a day, and its 52-week range is in the low-$50s to $72.77 (flash crash low was listed as $23.00). Its holdings include Anglo Platinum, AngloGold Ashanti, Firstrand, Gold Fields Ltd., Sasol, and Standard Bank.
Is Africa risky? Are many other nations in the Frontiers markets risky? Absolutely. But many of these nations have some of the biggest undisturbed deposits of natural resources. That’s why we have highlighted these ETF and fund products rather than make individual picks.