Written by Joe McGrath | From Financial News

Demand for frontier markets funds has been growing of late as institutional investors seek better returns than from emerging markets funds, which, while safer, have been failing to deliver over the past three years.

The MSCI Emerging Markets index return was down 11% in the three years to the end of March, according to figures from FE Analytics, while the MSCI Frontier Markets index was up by 23.1%. As a result, investors are increasingly offering specialist mandates to managers with a pedigree in this higher-risk sector.

Slim Feriani, chief investment officer of Advance Emerging Capital, said: “This is the embryonic stage for frontier markets. There is certainly interest for the non-developed market space. Over the past 12 to 18 months, it has been noticeable that there is not as much interest in emerging markets, whereas for frontiers, people are saying ‘Tell me more’.

“There is a growing amount of money being allocated off a low base. The flows into frontier markets would be a few billion dollars – anywhere between $3 billion and $4 billion, which is significant compared to the total assets, but peanuts compared to emerging markets.”

In February, HSBC confirmed it had landed a mandate to manage £60 million in active frontier market equities on behalf of the Cornwall Pension Fund and this month, Advance Emerging Capital landed a mandate to manage a further £34 million for the very same fund.

Elsewhere, T Rowe Price confirmed in an interview with Financial News that increased investor demand for frontier markets products is the basis for its forthcoming Global Frontier Markets fund, which will be launching within the next eight weeks.

Mishnah Seth, head of frontier strategies at Momentum Asset Management, said: “For most of this year, we have definitely seen that frontier markets have fared very well relative to emerging markets. Our view is that tapering hasn’t really had a negative impact on frontier markets.”

Read more at Financial News