– those markets too small, risky or illiquid to enter most emerging market indexes. The US-China trade dispute is a rumbling volcano that occasionally erupts, sending everyone running for cover, and threatening the diversification benefits usually offered by developing economy assets. But some emerging and frontier markets are also maturing as governments modernise and make reforms. There are hidden gems waiting to be discovered as well as structural opportunities: a frontier market included in an emerging market index is often suddenly in demand and may use the capital to further upgrade. A selective approach that understands each country and can identify the winners is therefore helpful. In this guide we hear from experts on the different drivers of risk and reward across a range of emerging and frontier markets. We also hear from Sam Bentley, Eastspring’s client portfolio manager for emerging market equities, on how a value approach can help investors break free from the mass of emerging market equity investors. Following the herd is never a good idea, especially when dealing with risky assets and a volatile global economy.
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eopolitics have dogged emerging markets investors over the last year including investors in frontier markets
SECTOR REVIEW
Global Emerging Markets
Headwinds or tailwinds for emerging market investors?
Exploiting the long-term value opportunity in emerging markets
Unearthing hidden gems in frontier markets
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emerging market debt bounced back during the first quarter of 2019, as risk appetite returned and the US and China agreed to halt new trade tariffs. Local currency emerging market debt delivered an average return of 6.6% during the first quarter and 4.2% in sterling terms, according to data from JP Morgan Asset Management. However, just as the asset class started to turn a corner, trade tensions between the US and China picked up once again. This culminated in US president Donald Trump’s administration raising tariffs on $200 billion of Chinese goods from 10% to 25% on 10 May. China then retaliated by increasing tariffs on $60 billion of US goods, coming into effect on 1 June. These events provided a blow to risk assets, causing global markets and emerging market currencies to sell off as investors flocked to perceived safe havens such as US government bonds. In light of the ongoing trade tensions, investors may be tempted by attractive valuations in the emerging market debt space. However, it is important to consider the potential risks and unknowns.
t has been a bumpy ride for emerging market debt investors over the past 12 months – and if events in May are anything to go by, we could be in for a volatile second quarter. For some investors, the events of the past six months are likely to feel like a ‘one step forward, two steps back’ scenario. After a pronounced sell-off in 2018,
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The headwinds
The ongoing trade war between China and the US represents one of the biggest risks facing emerging market assets right now. Other macro headwinds include US interest rates rising significantly above 3% and the potential repercussions of a significant recession in the US, according to Investec Asset Management. While the US’s hiking cycle represents another challenge for emerging markets, Eerdmans points out that we are closer to the end of this cycle than the beginning, so this headwind should start to recede. “It also seems likely that the next phase of emerging markets’ development will take place in the context of a weaker US dollar, as the world’s largest economy grapples to contain its current account deficit. That would provide a significant tailwind for emerging market returns,” he adds.
Emerging market performance turns round amid sentiment shift
MSCI Emerging vs World indices (rebased)
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Java, Indonesia: the Investec Emerging Markets Blended Debt fund has exposure to sovereign and corporate debt in Indonesia
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Source: 1 FactSet
reinsurance, asset backed securities or aeroplane leasing – others can provide welcome diversification to plain vanilla portfolios. And in times of market stress, a diversified approach is much needed to help boost returns and smooth losses. In this guide NN Investment Partners discuss the value of factor investing, and how the best factor strategies have a sound economic underpinning without being over-engineered. We also hear from Natixis’ UK sales head, Darren Pilbeam, who discusses how alternative strategies can provide a different lens through which to view market volatility. Alternatives do carry with them associated complexity and a lower level of regulatory oversight. So they are not without their challenges. But in a world of lower growth, a good deal of uncertainty and the feeling that traditional investment options are under delivering, alternative investments may just be the answer.
t has been a bumpy ride for emerging market debt investors over the past 12 months – and if events in May are anything to go by, we could be in for a volatile second quarter. For
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There are many definitions of alternatives but some of the main types include commodities, specialist property, infrastucture and asset leasing. Once considered to only available to large institutional investors, these assets have moved to the mainstream as smaller investors look to add more diversification to their more traditional investments like bonds and equities. A 2018 paper published by CAIA Association and the CFA Institute Research Foundation, Alternative Investments: A Primer for Investment Professionals, outlines three primary attributes of alternatives, any of which can lead an asset to be classified as ‘alternative’: 1. Returns are driven by exposures to underlying assets with non-traditional cash flows. 2. The returns of the investment are driven by complex trading strategies which result in “unusual risk exposures”. 3. Returns are structured to “generate non-traditional payouts”. The report notes that in all of these cases, specialised methods of analysis are needed as returns do not mimic the returns of traditional asset classes – i.e. stocks and bonds.
Defining alternatives
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Anthony Willis, a multi-manager at BMO Global Asset Management, says it is not yet clear if the recent escalation in trade tensions indicate that talks have been unsuccessful or represent a tactical play from president Trump. “We do still think it is in the interests of both sides to reach a trade deal. But if it is not to be, the Chinese authorities will likely take further steps to cushion the impact of persistent and high tariffs on their exports to the US,” he says. Willis points out that China has the potential to take action outside of tariffs and may look to frustrate the operations and growth of US companies doing business in China. The government could also depreciate the currency, which would create ripples across global markets. Peter Eerdmans, manager of the Investec Emerging Markets Blended Debt fund and head of emerging market sovereign and FX, expects to see a resolution of trade tensions. He estimates that the US’s decision to increase tariffs to 25% on Chinese goods will only have a modest impact on Chinese GDP. “The first round [of tariffs] is relatively manageable if you think about the support the Chinese authorities are giving to their economy and the loosening of some of the credit measures they have taken in recent years. We still have a base case of 6.3% to 6.5% growth for China this year,” Eerdmans explains. He believes it is in Trump’s interest to do a trade deal because tariffs will cause the price of goods to rise for US consumers. In turn, this could result in higher US inflation, which would feed through to global growth and global stockmarkets.
Understanding the risks
Identifying opportunities
Eerdmans takes the view that emerging markets have entered a new cycle, following a ‘lacklustre cycle’ between 2013 and 2018. He is concerned that investors may be anchoring their expectations to the recent past, which means they have become “excessively pessimistic” about emerging markets. “A wider lens highlights that an allocation to emerging markets today is a very different investment proposition than it was either in 2003 or 2013. Quietly and gradually, emerging markets have been maturing and – nearer-term gyrations notwithstanding – we believe they are now positioned for sustainable growth,” he notes. Eerdmans points to the structural reforms and prudent fiscal and monetary policies that have been put in place by emerging economies over the past five to six years. Meanwhile, companies largely have low leverage and high cash balances. Willis agrees that emerging market debt represents an attractive asset class for long-term investors, but warns they must be prepared for potential volatility along the way. This is typically driven by broad risk appetite rather than specific issues regarding a country or region.
So where are investors spotting investment opportunities? Dan Kemp, chief investment officer at Morningstar Investment Management EMEA, believes the best opportunities lie in local currency emerging market debt right now. He describes this sub-asset class as “the most attractive fixed income market”, but notes that it tends to behave differently to other fixed income assets - particularly developed-market government bonds. His team gains exposure via actively managed funds and index funds across Morningstar’s Managed Portfolio range. “There’s still a broad spread of opportunities there, so there should be opportunities for active managers to add value, but we know that historically it has been difficult for managers to do this,” he explains. As Morningstar’s Managed Portfolios are valuation-driven, the investment team took advantage of attractive valuations and high yields in the emerging market debt space late last year, as others grew risk-averse. Speaking ahead of the latest round of US and Chinese trade tariffs, Kemp anticipated that volatility created by a re-escalation in trade tensions could present opportunities in the emerging market debt sector. When it comes to dollar-denominated emerging market sovereign and corporate debt, he advises investors to look at two key components: firstly, their attractiveness relative to government bond markets and secondly the spread. Speaking ahead of the recent tariffs, he described the core market spread as being “around fair value.” Eerdmans, on the other hand, argues that dollar-denominated emerging market bonds currently offer a better risk-reward trade-off, as they typically exhibit lower volatility and provide a decent overall spread. At a country level, he remains positive on Indonesia, where the team has exposure to sovereign, quasi-sovereign and corporate debt. He points to attractive spreads and the country’s improving current account deficit. The team also favours debt issued by the Dominican Republic, Egypt and Qatar. When it comes to currencies, the fund manager is spotting relative value in the Egyptian pound and remains bullish on the Brazilian real, which stands to benefit from a good outcome with social security reform over the summer and a more business-friendly government. He is also relatively constructive on the Chinese renminbi and Chinese rates, pointing out that a lot of negativity is already priced in. Meanwhile, Willis’ team is spotting investment opportunities across both local and hard currency emerging market bonds. The multi-manager notes that local currency debt, in particular, has become more attractive since a number of emerging economies strengthened their sovereign balance sheets. “There remains a high level of sensitivity to US rates and the path of the dollar, though with the change in tack from the US Federal Reserve from the start of this year, the backdrop from a dollar strength perspective is more benign. Hence we see opportunities in both areas of emerging market debt,” he explains. The BMO multi-manager team currently has exposure to the asset class via Ashmore Emerging Markets Total Return, Barings Emerging Market Debt Blended and the 1167 Active Funds Global High Income. Emerging market bonds are likely to experience further volatility over the coming months, particularly as the trade negotiations between the US and China continue. Nevertheless, this could create opportunities for savvy, long-term, income-seeking investors who are prepared to fasten their seatbelts and ride out the turbulence.
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Eastspring’s client portfolio manager for emerging market equities, Sam Bentley, believes it is time to break from the herd and try something different. With most emerging market equity investors following a growth/quality approach he’s convinced there is mispricing in the market, meaning a value approach can offer huge opportunities over time
We believe behavioural biases drive mis-pricing. Our structure, process and tools deliberately and repeatedly target this mis-pricing. We have a disciplined process that focuses on valuation outliers. We take a longer horizon, allowing us to focus on sustainable earnings. We have structured our team to maximise challenge and debate.
The Eastspring Investments Global Emerging Markets Dynamic Strategy
You take a different approach to investing in emerging market equities. Why?
If you look at our universe, most of our peers are taking a growth/quality approach or a combined approach. Very few follow a disciplined value approach. We believe there is a huge opportunity in value and we are doing something different – trying to capture the mispricing that has been created as a result of behavioural biases. There is not just potential for excess returns, but building disciplined value-focused funds offers clients a source of returns that are not correlated with the rest of the market and which could reduce portfolio volatility. Looking at the long-term picture, value has outperformed and history suggests that taking a value approach is the best approach in emerging market equities. This informs our philosophy and approach to investing. We are not trying to compete with the market on forecasting near-term earnings and growth trajectories. We think value is where the opportunity is and where we can make the most money for clients.
Sam is the client portfolio manager for the Regional Asia and Global Emerging Market equity strategies at Eastspring Investments and is responsible for representing the views and the strategies of the respective investment teams. Eastspring Investments is a leading asset manager in Asia that manages over USD 193 billion as at (31 December 2018) of assets on behalf of institutional and retail clients. Operating in Asia since 1994, Eastspring is the Asian asset management business of Prudential plc, one of the world’s largest financial services companies. Eastspring Investments (Singapore) Limited is the delegated investment manager of Eastspring Investments (Luxembourg) SA.
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stress, such as in February 2018, when both asset classes declined sharply in unison. Meanwhile, the second half of 2018 saw a shift from synchronized global growth to an unsynchronized slowdown across regions. The fourth quarter of 2018, in particular, saw global equities fall by almost 13% – the Nasdaq was technically in bear market territory on 24 December, down 23% from its end-August peak. December was the worst month for US equities in 50 years. With interest rates rising, central banks reducing their stimulus and market volatility increasing, 2019 is shaping up to be a complex and challenging investment landscape. Traditional asset classes like equities and bonds certainly still have their place in portfolios, but there’s an increasing need to think outside the box and look at the alternatives.
Willem: Well, investors have broadly embraced the concept of factor investing and the value it brings. In the last few years in particular, we have seen an increasing demand for factor-based strategies that go beyond single stock equities and extend into other asset classes, and that target an absolute return. This is a logical and valuable step because the drivers of factor returns, like behavioural biases, are present in all asset classes. By taking a multi asset class approach and combining long and short exposures, investors can further benefit from the added value that factors can bring, namely attractive and diversified returns.
Sam is the client portfolio manager for the Regional Asia and Global Emerging Market equity strategies...
About Sam Bentley
What are the benefits of investing in a value-styled strategy?
Well it certainly helps that many, if not most, investors are focusing elsewhere. We are trying to take advantage of short-term mispricing created by other investors’ behavioural biases. People tend to overreact and aggressively sell down stocks they are fearful of or have some sort of near-term concern. Hard-wired human behavioural biases can lead people to overpay for stocks they feel comfortable holding or have an emotional attachment to. This is a huge opportunity when it comes to emerging markets, which are often driven by big swings in sentiment.
How does the Eastspring Global Emerging Markets Dynamic Strategy seek long-term value opportunities?
We manage around $700m in the strategy, which contains our best ideas from the emerging market universe. The strategy selects from the broadest universe of emerging market equities going beyond the stocks comprising the MSCI Emerging Markets benchmark to look at every stock that is listed across EM markets. It runs all the stocks through a quantitative screen, taking around 3,000 down to the cheapest 500. Those 500 stocks are looked at on a very high-level basis for indications of a value signal on a weekly basis, taking an initial look at about 100 stocks during the course of a year. We will narrow this down to about 20 to 40 stocks per annum on which we conduct very detailed research before including any in the portfolio. This is a purely bottom-up stock-specific approach, though it does mean the strategy may be overweight in certain markets where we find clusters of opportunities. Thus the strategy is currently overweight in Korea, which is less popular with investors overall, while underweight in the currently popular India–driven by our bottom-up stock- specific research.
Can you expand on your investment philosophy?
It is very much bottom-up. We are not overlaying a view to say, ‘We like China, we don’t like India.’ We do see pockets of value being highlighted by our screens, so by being disciplined we tend to be overweight sectors and countries that everybody else doesn’t like. An example of the stock-specific approach can be seen in Mexico. We are overweight in Mexico. It used to be one of the darlings of Latin America along with expensive valuations. It was correlated to the US with good quality companies and management, but as soon as you had geopolitical concerns around relationships with the US, Nafta concerns and domestic election uncertainty, Mexico got hit very hard. Yet we found a high-quality domestic bank that had been sold off aggressively but where very little of its balance sheet was exposed to Nafta-related trade. But there are value traps to be avoided and some stocks that look to potentially offer value may be very poorly managed. Hence why we take a really close look at a relatively small number of stocks in great detail. We want to look at areas of the market where stocks have been sold off for the wrong reasons, but we have to be very careful buying shares so that we are avoiding the value traps. Sometimes there are broken companies with bad management and with products or services that are profoundly challenged by structural changes in their markets. That is why we are very careful about our research process. We need to have a lot of conviction about a stock before we buy it.
Do you think the emerging markets are attractive at the moment?
Current valuations show, first of all, a big opportunity in emerging markets generally and in value in particular. If you look at the headline valuations for emerging markets, the MSCI price to book is at very attractive levels of 1.5 times, so well below its historical average. If you buy emerging markets at this level you should have the potential for a very attractive long-term return. If you compare EM to developed markets, EM is even more attractive. If you look at the US it is still very expensive relatively speaking. EM is still more than one standard deviation cheaper compared with developed markets, relative to the long-term historical picture. There are also very significant price differentials within emerging markets. The dispersion between the cheaper and more expensive end of most emerging markets is very wide. A lot of stocks in the growth or quality end of the market have done very well and are therefore now very expensive.
Finally, why do you think an adviser should consider this strategy at this point in the cycle?
We have now got to a point where you can see the growth and quality names at around two standard deviations more expensive or, to put it another way, you can say that value has become two standard deviations cheaper. Many investors and fund selectors may have an unintended bias to quality or growth managers. We want to start a debate to say, ‘Why not add some value to your portfolio? Look at price rather than those other metrics.’ When we look at our active return profile over time it is negatively correlated to the rest of our peers, so our product should reduce the volatility of your portfolio, improve your information ratio, your risk-return balance and over the long term you should outperform as well.
Despite geopolitical concerns, Eastspring are “overweight in Mexico” according to Sam Bentley
“Many investors have an unintended bias to quality. We want to start a debate to say, ‘why not add some value to your portfolio?’”
Sam Bentley, emerging market equity, client portfolio manager, Eastspring Investments
We manage around $700m in the strategy, which contains our best ideas from the emerging market universe. The strategy selects from the broadest universe of emerging market equities going beyond the stocks comprising the MSCI Emerging Markets benchmark to look at every stock that is listed across EM markets. It runs all the stocks through a quantitative screen, taking around 3,000 down to the cheapest 500. Those 500 stocks are looked at on a very high-level basis for indications of a value signal on a weekly basis, taking an initial look at about 100 stocks during the course of a year. We will narrow this down to about 20 to 40 stocks per annum on which we conduct very detailed research before including any in the portfolio. This is a purely bottom-up stock-specific approach, though it does mean the strategy may be overweight in certain markets where we find clusters of opportunities. Thus the strategy is currently overweight in Korea, which is less popular with investors overall, while underweight in the currently popular India–driven by our bottom-up stock-specific research.
Emerging Markets and 3.2% for the FTSE All World, in sterling terms. The magnitude of this fall was particularly surprising, since frontier markets usually have a low correlation to other global stockmarkets. Frontier markets are developing economies which are considered too small, risky or illiquid to be classed a fully-fledged emerging market. As a result, they have unique growth drivers and different risk characteristics compared to global peers. They are also often under-researched, meaning they trade at attractive valuations even if they display strong growth prospects. James Johnstone, co-head of emerging & frontier markets at RWC Partners, said: “Smaller emerging economies and larger, more liquid frontier markets are offering a compelling investment opportunity similar to that which we saw in larger emerging markets 10-15 years ago. They have low correlations to both developed markets and each other, offering investors a truly diversified range of companies and countries.”
nvestors’ nerves were tested in 2018 as global markets plummeted, with news headlines dominated by the escalating tensions between the US and China. Frontier markets were no exception. The MSCI Frontier Markets index experienced a larger decline than its developed peers, dropping 11.2% versus a fall of 9.2% for MSCI
Vietnam: a favourite with frontier manager RWC Partners
attractive risk-return profiles to working hard as a kind of insurance policy. Today many investors have recognised that a sizable allocation to alternatives can give a needed boost to portfolios. AJ Somal, a financial adviser at Aurora Financial Planning, says that among this clients: “There has been a shift to investing in alternative assets, and a move away from traditional asset classes like bonds and equities.” He adds: “My clients have been investing in property (buy-to-let), peer-to-peer lending, and buying premium bonds – with the latter to mitigate tax.” The alternative funds chosen for a portfolio depend on the role they are expected to play and how granular a portfolio manager’s fund selection and asset allocation are. Do they sit in an ‘alternatives’ allocation? Are they included under a ‘diversification’ heading? If they are more directional, do they actually sit in a portfolio’s equity risk budget?
nvestors’ nerves were tested in 2018 as global markets plummeted, with news headlines dominated by the escalating tensions between the US and China. Frontier
These low correlations are a key reason to consider adding frontier markets to a diversified portfolio. A 2014 study by FTSE Russell found the correlation between frontier and developed markets over a five-year period was 0.58, while the correlation of emerging and developed markets was 0.88. Separate academic research1 also revealed that while developed markets historically outperform when their central banks pursue expansive monetary policies, frontier markets enjoy higher returns in the opposite circumstances. Rob Gleeson, head of research at FE, said: “The diversification is key. If you can find markets that will make gains and losses at a different time to the rest of the portfolio it is very valuable, as most assets move in the same direction at any given time.” Although 2018 saw losses for frontier and developed market alike, historically frontiers often outperform global equities during downturns.2 “You have to remember that not every sell-off is the same,” said Gleeson. “The escalation of trade wars is a singular event which affected all markets equally, but what about when interest rates go up, or GDP figures come in weak? Markets don’t go up and down in isolation. The long-term trends are correlated, but the short-term events are random.”
Low correlations
However, due to the diverse nature of the frontier market investment universe, being selective is of key importance when investing in the region. Index provider MSCI classifies 33 countries as frontier, including Argentina, Kuwait, Kenya, Morocco, Oman and Vietnam, many of which have different growth drivers and economic prospects, so returns can vary greatly. For example, Argentina plummeted nearly 50% in sterling terms in 2018 as it suffered a balance of payments crisis, but Kuwait and Saudi Arabia posted returns of 18% and 22%, respectively, while Zimbabwe returned a whopping 133%. To identify the success stories in frontier markets it is necessary to employ an unconstrained approach, as the laggards drag down the return of the entire index while the top performers often have a negligible or non-existent allocation: Argentina is the third largest constituent of MSCI Frontier Markets, while Zimbabwe is not part of the index at all. Roger Jones, head of equities at London & Capital, said: “The key element to look for is a government that is looking to modernise through reform and offers a progressive agenda. Once this occurs, foreign direct investment follows and a low GDP per capita starting point often provides export market potential due to low costs of production. In turn, this creates jobs and domestic consumption and an upward trajectory begins.“ However, often countries with great potential, e.g. Latin American and African countries, have failed to develop as the government doesn’t allow a progressive regime, so inequality, instability and ultimately an uprising occurs.” Those willing to do their research and look beyond the benchmark are therefore in the best position to unearth the hidden gems of frontier markets, while understanding the drivers behind each economy is the key to finding them. Tim Love, investment director in charge of EM equity strategies at GAM Investments, has identified five countries with strong long-term outlooks, which he has combined under the acronym VARPS – Vietnam, Argentina, Romania, Pakistan and Saudi Arabia. RWC’s Johnstone is also particularly optimistic on the outlook for Vietnam, a firm favourite with frontier managers due to its strong and stable economic growth, domestic reforms and growing middle class. Vietnam posted real GDP growth of 7.1% last year, inflation is under control, and consumption remains strong. As a result, its stockmarket made a strong start to the year, with a rise of 12.9% in Q1. Johnstone also sees compelling opportunities in Egypt, such as property company Palm Hills Developments (which saw a 30% rally after the central bank cut interest rates by 100bps to 16.75% earlier this year), as well as the Kazakhstan banking sector, which is undergoing consolidation.
Another way to identify the best prospects is to look for countries which are about to be upgraded to emerging market status, which tends to keep valuations at a high level by attracting foreign investment. In its 2019 outlook for frontier markets, East Capital said: “Upgrading frontier markets into emerging indices usually turns into graduation parties, as global investors pay increasingly more attention to relevant markets and large active and passive inflows follow to help boost the performance of the markets that are upgraded. “Index upgrades also confirm that the graduating frontier markets are moving in the right direction to deliver what is expected from them in terms of market reforms.” Saudi Arabia and Argentina have already succeeded in being upgraded to the MSCI Emerging Markets index, while Vietnam and Kuwait are on the waiting list. The latter has already been upgraded to emerging market status by FTSE Russell, which has resulted in strong flows in Q1 leading to a 12.9% stockmarket rise during the quarter.
Country selection
Index upgrades
But while these markets have the potential to offer double-digit uncorrelated returns, it is precisely their volatility that makes them attractive, and therefore a long time horizon is needed. Laith Khalaf, senior analyst at Hargreaves Lansdown, also warns that liquidity and corporate governance concerns come hand-in-hand with frontier markets. Investing in them requires an active approach and the willingness to “roll the sleeves up and dig down into the nitty gritty”. Phil Organ, investment manager at Leodis Wealth Asset Management, has a five to seven-year horizon when investing in frontiers and restricts the allocation to a small portion of the risk budget to mitigate the risks. “There are a number of fund managers that focus on frontier markets and investment in these funds is the optimum way of gaining exposure for clients,” he said. “We have invested in BlackRock Frontiers Investment Trust, one of the leading fund managers covering this area. They therefore have the scale of research capabilities to invest in frontier markets which we feel is essential in allocating our client’s investments.”
Long-term investment
Sources: (1) Robert R. Johnson, Gerald Jensen, and Luis Garcia-Feijoo, Invest With the Fed (McGraw-Hill, 2015) (2) Edward Evans, Ashmore Equity Outlook 2019: Emerging Markets: “Over the previous ten largest drawdowns in the MSCI World index, for those six years that the Frontier Markets index has existed, it has outperformed the MSCI World in four cases.” (3) FE 10/05/2019 (4) FE 2019 (Data: 31/12/18 - 09/05/19)
Pounds Sterling
Emerging versus frontier markets long-term performance
3
2019 performance of emerging versus frontier markets
4
These low correlations are a key reason to consider adding frontier markets to a diversified portfolio. A 2014 study by FTSE Russell found the correlation between frontier and developed markets over a five-year period was 0.58, while the correlation of emerging and developed markets was 0.88. Separate academic research(1) also revealed that while developed markets historically outperform when their central banks pursue expansive monetary policies, frontier markets enjoy higher returns in the opposite circumstances. Rob Gleeson, head of research at FE, said: “The diversification is key. If you can find markets that will make gains and losses at a different time to the rest of the portfolio it is very valuable, as most assets move in the same direction at any given time.” Although 2018 saw losses for frontier and developed market alike, historically frontiers often outperform global equities during downturns.(2) “You have to remember that not every sell-off is the same,” said Gleeson. “The escalation of trade wars is a singular event which affected all markets equally, but what about when interest rates go up, or GDP figures come in weak? Markets don’t go up and down in isolation. The long-term trends are correlated, but the short-term events are random.”
