FINRA Issues Investor Alert Regarding Frontier Funds

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FINRA Issues Investor Alert Regarding Frontier Funds

FINRA issued a new investors alert, this time warning investors considering funds that invest in frontier markets to take note of the large risk associated with these markets. Although no set definition of frontier markets exists, such frontier funds typically invest in companies in countries with developing securities markets, including Argentina, Lebanon, Nigeria, Slovenia, and Vietnam.

Gerri Walsh, FINRA’s Senior Vice President for Investor Education cautions that “[i]nvestors seeking potentially higher returns in frontier funds should understand that the promise of higher returns always carries more risk—and the past performance of any fund is never a guarantee of future results.”

FINRA’s alert warns that any investment has its pros and cons and provides investors with tips to avoid problems:

  • Know which frontier markets the fund invests in. Risk factors vary by country—and no two countries share identical risk elements.
  • Monitor changes in index components. If you are investing in a frontier ETF or index mutual fund, make sure you know and understand the index that the fund tracks and also the components of that index. The countries included in a frontier index can change over time.
  • Geopolitical and currency risks are real. Be aware that some frontier markets are located in parts of the world with unstable political or market environments.
  • Factor in costs and fees. Frontier fund costs and fees can be higher than their emerging market peers, and significantly higher than broadly diversified domestic and international managed funds.
  • Consider Performance History. Frontier funds are relatively new, and most have limited performance histories.

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