revenge of the thrd world...frontier ukraine $3.9 4.8x developed ireland $813.2 13.8x frontier...
TRANSCRIPT
REVENGE OF THE THRD WORLD
January, 2019
Presented by:Lawrence Speidell, Chief Investment Officer
REVENGE OF THE THIRD WORLD
• Developed Markets• “End of an Era” - Kissinger• Populism up, Trust down• Values?
• Third World• Growth• Demographics• Productivity• Middle Class
• Opportunity• World Growth• Valuations• Inefficiency• Diversification
2
FIRST WORLD VIEW OF THE THIRD WORLD
3
Source: http://beaugency.over-blog.com/article-des-cartes-pour-comprendre-le-monde-123995680.html
REVENGE OF THE THIRD WORLD
Population in 1985: China 1,070 million & Soviet Union 410 million
4
Source https://en.wikipedia.org/wiki/Third_World
END OF AN ERA – HENRY KISSINGER
5
Lunch with the FT Henry Kissinger - Financial Times, July 20, 2018
“I think Trump may be one of those figures in history who appears from time to time to mark the end of an era and to force it to give up its old pretences.”
So could Trump be shocking the rest of the west to stand on its own feet?
“It would be ironic if that emerged out of the Trump era,” Kissinger replies. “But it is not impossible.”
Trump could accidentally scare us into reinventing the rules-based order that we used to take for granted. Is that?
“I think we are in a very, very grave period for the world,” Kissinger replies.
POPULISM IS A RESPONSE TO NEOLIBERALISM & SECULAR STAGNATION
6
The Deep Causes of Secular Stagnation and the Rise of Populismby James Montier, Philip Pilkington of GMO, 3/27/17
FIRST WORLD
7
Source: New Yorker
FIRST WORLD
8
POPULISM UP
60% OF G 20 GDP
9
Strong-Arm Governments Are Taking Over the Global Economy, Bloomberg Economics, 8/10/18
POPULISM ~=
35% OF PARTIES
10
Tett, Gillian, US Editor, Financial Times, “Back to the Future: Is Globalization under Attack?”, Auerbach Grayson Emerging & Frontier Markets Conference, October 29, 2018
TRUST IN INSTITUTIONS 2018 / 2017: US DOWN 9%
11
Source: Edelman Trust Barometer, Jan 2018
TRUST IN INSTITUTIONS 2018 / 2017: US INFORMED PUBLIC DOWN 23%
12
Source: Edelman Trust Barometer, Jan 2018
FIRST WORLD – VALUES
13
Daily Shot, Wall Street Journal, 8/27/18
FIRST WORLD - VALUES
14
Source: New Yorker
USA - ONLY 84% IN US BELIEVE WORLD IS ROUND
15
Daily Shot, Wall Street Journal, 8/27/18https://today.yougov.com/topics/philosophy/articles-reports/2018/04/02/most-flat-earthers-consider-themselves-religious?mod=djemDailyShot&mod=djemDailyShot
FIRST WORLD
16
Source: Wall Street Journal Catch 22 of Globalization, January 22, 2019
FIRST WORLD
17
Source: Wall Street Journal Catch 22 of Globalization, January 22, 2019
Trade Growth versus
World GDP Growth
FIRST WORLD
18
Source: New Yorker
FIRST WORLD
19
Source: New Yorker
THIRD WORLD - POVERTY
20
POVERTY HEADCOUNT RATIO AT $1.90 A DAY (2011 PPP) (% OF POPULATION)
21
Last
Annualized Absolute
Improvement
India 21.2% 5.1%
China 0.7% 4.2%
Nepal 15.0% 4.1%
Tanzania 49.1% 4.1%
Kyrgyz Republic 1.4% 3.2%
Pakistan 4.0% 3.1%
Indonesia 5.7% 2.8%
Moldova 0.2% 2.7%
Vietnam 2.0% 1.9%
Ghana 12.0% 1.9%
Ecuador 3.6% 1.7%
Rwanda 56.0% 1.7%
Namibia 13.4% 1.6%
Uganda 41.6% 1.3%
Botswana 18.2% 1.2%
Georgia 4.2% 1.1%
South Africa 18.9% 1.0%
Mozambique 62.9% 1.0%
Macedonia 5.0% 1.0%
Source: World Bank, WDI database, 2018
THIRD WORLD - GROWTH
22
8.1%
7.3%
6.5%
5.7%
4.9%
4.1%
3.2%
2.4%
1.6%
0.8%
0.0%
7.8% Rwanda
7.8% India
7.6% Ghana
7.0% Senegal
7.0% Bangladesh
6.8% Philippines
6.6% Tanzania
6.5% Vietnam
6.4% China
6.3% Mongolia
source: IMF, FGP, Oct 2018 - Choropleth Map GDP 190114
GDP Growth Est 2023Top 10
GDP Growth Rate Estimates 2023
1.4%
1.5%
2.5%
6.4%
THIRD WORLD - GROWTH
23
THIRD WORLD – GROWTH VERSUS INCOME
24
y = -0.0181x + 0.0499
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200%
GD
P G
row
th R
ate
% of US GDP/capita
GDP Growth 2015-2020 est vs Relative GDP/capita
Source: World Bank , IMF 2016Venezuela
Bangladesh
India
THIRD WORLD
25
Source: New Yorker
THIRD WORLD – IT’S ABOUT PEOPLE
26
Korail slum, Dhaka, Bangladesh, 2015 -50,000 people, .25 sq km = 200 per 1/4 acre
THIRD WORLD – BRAC SCHOOL, KORAIL
27
Korail slum, Dhaka, Bangladesh, 2015 -50,000 people, .25 sq km = 200 per 1/4 acre
THIRD WORLD – STRATHMORE UNIVERSITY, NAIROBI
28
Korail slum, Dhaka, Bangladesh, 2015 -50,000 people, .25 sq km = 200 per 1/4 acre
THIRD WORLD – SMALL BUSINESS
29
THIRD WORLD – MIDDLE CLASS
30
Bashundara City Mall, Dhaka, Bangladesh
THIRD WORLD - DEMOGRAPHICS
31
THIRD WORLD - URBANIZATION
Source: WDI Database 2012
32
FIRST WORLD – DEMOGRAPHICS: PRODUCTIVITY, DEPENDENCY & MATURITY
33
THIRD WORLD - DEMOGRAPHICS: PRODUCTIVITY, DEPENDENCY & MATURITY
34
THIRD WORLD - WAGES
35
Source: New Yorker
THIRD WORLD - WAGES
36
THIRD WORLD - WAGES
37
THIRD WORLD – MIDDLE CLASS
38
Source: World Bank, IMF, Wikipedia, Frontier Market Asset Management, WSJ 3/18/13
THIRD WORLD - INFRASTRUCTURE
39
THIRD WORLD- DEMOCRACY
FREEDOM HOUSE: FREEDOM IN THE WORLD
40
POLITICAL RIGHTS AND CIVIL LIBERTIES
THIRD WORLD - COUNTRY RANKS
41
Source: World Bank, WDI Ranks.xls
Country Ranks Nigeria Ghana Cote d'Ivoire Morocco India China
Age 35-49 /20-34 2040/2010 8% 14% 21% 28% 24% 13%
Urban % chg 2000-2016 15% 11% 12% 8% 6% 22%
Annualized Drop in Child Mortality -1.7% -1.6% -1.2% -2.0% -2.2% -3.8%
Depencency chg 2050/2015 (<15+>65/15-65) -26% -23% -22% 12% -9% 79%
GINI index 43 42 42 41 35 42
Human Capital 64 64 65 70 77 62
Gross capital formation (% of GDP) 15% 16% 23% 33% 31% 44%
Foreign direct investment, net inflows (% of GDP) 1% 7% 2% 2% 2% 1%
Gross savings (% of GDP) 16% 7% 20% 28% 32% 47%
Electric power transmission and distribution losses (% of output) 16% 23% 14% 15% 19% 5%
Investment 18 30 40 68 59 85
Heritage Economic Freedom 10 Yr Chg -9% -6% -9% 3% 8% -7%
Governance Indicators 105 324 228 253 278 253
Current account balance (% of GDP) 3% -4% -1% -4% -2% 1%
General government final consumption expenditure (% of GDP) 5% 10% 12% 19% 11% 14%
Government 53 52 48 43 73 51
Total Rank 135 146 153 181 209 199
THIRD WORLD - COUNTRY RANKS
42
Outlook/Choropleth Avg Total Rank.xls
WORLD GROWTH HISTORY
43
WORLD GROWTH PROJECTIONS
44
THIRD WORLD – FASTEST GROWERS
45
Source: World Bank WDI, FGP, 2018
GDP per Capita (PPP) 2015 2050 Ann % Chg
Frontier Bangladesh $3,630 $48,536 7.7%
Frontier Rwanda $1,884 $20,076 7.0%
Frontier Guyana $7,533 $78,124 6.9%
Emerging India $6,255 $64,490 6.9%
Frontier Vietnam $6,035 $58,823 6.7%
Frontier Tanzania $2,910 $26,787 6.5%
Frontier Uzbekistan $6,076 $50,652 6.2%
Emerging Philippines $7,332 $57,196 6.0%
Frontier Cote d'Ivoire $3,396 $25,793 6.0%
Frontier Senegal $2,448 $18,317 5.9%
Frontier Moldova $5,054 $36,755 5.8%
Frontier Georgia $9,602 $65,520 5.6%
Frontier Uganda $2,267 $14,281 5.4%
Frontier Kenya $3,227 $19,770 5.3%
Frontier Ukraine $7,997 $47,955 5.3%
Frontier Armenia $8,513 $49,230 5.1%
Emerging Morocco $8,045 $46,028 5.1%
Frontier Mongolia $12,183 $69,206 5.1%
Frontier Pakistan $4,908 $27,320 5.0%
Emerging Indonesia $11,157 $60,993 5.0%
Frontier Nepal $2,464 $12,720 4.8%
Emerging China $14,330 $73,398 4.8%
THIRD WORLD – COUNTRIES MEETING IN THE MIDDLE
46
Source: World Bank WDI, FGP, 2018
GDP per Capita (PPP) 2015 2050 Ann % Chg
Emerging Korea, Republic of (South Korea) $36,395 $98,011 2.9%
Frontier Lithuania $28,671 $97,293 3.6%
Frontier Bahrain $46,827 $97,205 2.1%
Developed Finland $41,115 $96,524 2.5%
Developed France $41,508 $95,840 2.4%
Developed United Kingdom $41,839 $95,025 2.4%
Frontier Slovak Republic $30,037 $94,209 3.3%
Developed Japan $40,392 $92,354 2.4%
Emerging Czech Republic $32,318 $91,741 3.0%
Developed Spain $34,835 $91,110 2.8%
Frontier Estonia $28,685 $90,539 3.3%
Frontier Cyprus $33,806 $89,337 2.8%
Frontier Slovenia $30,859 $88,619 3.1%
Emerging Malaysia $26,228 $87,572 3.5%
Frontier Oman $47,204 $86,357 1.7%
Developed New Zealand $36,681 $84,559 2.4%
Frontier Latvia $24,637 $83,037 3.5%
Emerging Poland $26,602 $82,947 3.3%
Developed Italy $36,026 $81,487 2.4%
Emerging Israel $34,117 $81,307 2.5%
Emerging Hungary $26,757 $81,254 3.2%
Frontier Romania $20,950 $80,554 3.9%
Frontier Panama $22,917 $79,577 3.6%
Developed Portugal $28,131 $74,242 2.8%
Emerging Turkey $24,236 $73,604 3.2%
Emerging China $14,330 $73,398 4.8%
Frontier Mauritius $19,537 $72,456 3.8%
INDEX VALUATIONS
47
Source: Wall Street Journal Catch 22 of Globalization, January 22, 2019
Source: Bloomberg, May 2018
THIRD WORLD – VALUATIONS
Mcap $Bil 2018 est PE High PE Markets Mcap $Bil 2018 est PE
Frontier Kazakhstan $15.0 0.4x Developed Norw ay $190.8 13.6x
Frontier Ukraine $3.9 4.8x Developed Ireland $813.2 13.8x
Frontier Uganda $0.6 5.3x Frontier Puerto Rico $9.6 13.9x
Frontier Lebanon $8.3 5.6x Developed Canada $1,956.6 14.1x
Emerging Turkey $146.7 6.0x Developed France $2,651.1 14.3x
Emerging Russia $602.3 6.4x Emerging Czech Republic $32.4 14.4x
Frontier Kenya $24.2 6.4x Frontier Croatia $5.1 14.6x
Frontier Nigeria $37.0 6.8x Developed Sw eden $701.3 14.7x
Frontier Papua New Guinea $0.6 7.4x Emerging Thailand $496.6 14.7x
Frontier Ghana $3.3 7.8x Developed Japan $6,532.3 14.9x
Frontier Sri Lanka $12.6 7.9x Developed Austria $143.2 14.9x
Frontier Argentina $85.5 8.1x Developed United States $33,274.1 15.0x
Frontier Pakistan $67.2 8.1x Developed Belgium $415.2 15.0x
Emerging Greece $40.8 8.4x Emerging China $10,673.1 15.1x
Frontier Palestine $2.8 8.5x Emerging Saudi Arabia $502.3 15.2x
Frontier Rw anda $0.2 8.6x Emerging Colombia $120.1 15.3x
Developed Netherlands $841.8 8.8x Developed Spain $769.6 15.4x
Emerging United Arab Emirates $176.7 9.1x Emerging India $1,914.4 15.5x
Frontier Panama $23.2 9.2x Emerging Chile $228.8 15.5x
Frontier Romania $19.7 9.3x Developed Australia $1,521.1 15.5x
Developed Hong Kong $1,934.0 9.3x Developed Finland $174.7 15.8x
Frontier Slovenia $6.2 9.5x Developed Denmark $409.6 15.9x
Frontier Tanzania $4.1 9.6x Frontier Namibia $2.5 15.9x
Frontier Egypt $44.0 9.6x Frontier Morocco $58.0 16.1x
Frontier Cyprus $11.6 9.7x Developed Germany $2,223.7 16.4x
Frontier Vietnam $133.8 9.8x Developed New Zealand $82.4 17.8x
Emerging Hungary $23.3 10.1x Developed Sw itzerland $628.5 18.6x
Frontier Lithuania $2.0 10.1x Frontier Zimbabw e $7.2 26.5x
Emerging South Korea $1,547.8 10.4x Frontier Botsw ana $2.3 35.7x
48
THIRD WORLD – OPPORTUNITY?
49
THIRD WORLD – OPPORTUNITY?
50
0
20
40
60
80
100
120
140
160
May
-02
No
v-0
2
May
-03
No
v-0
3
May
-04
No
v-0
4
May
-05
No
v-0
5
May
-06
No
v-0
6
May
-07
No
v-0
7
May
-08
No
v-0
8
May
-09
No
v-0
9
May
-10
No
v-1
0
May
-11
No
v-1
1
May
-12
No
v-1
2
May
-13
No
v-1
3
May
-14
No
v-1
4
May
-15
No
v-1
5
May
-16
No
v-1
6
May
-17
No
v-1
7
May
-18
No
v-1
8
US / Frontier
Source: MSCI, Bloomberg, MSCI Index Performance.xls Dec 2018
THIRD WORLD – OPPORTUNITY?
51
THIRD WORLD – OPPORTUNITY?
16% 15% 8%
-84% -85% -92%
US Large Cap Managers US Midcap Manager US Small Cap Managers
Percent of Managers Outperforming/Underperforming Benchmarks5 years ending 12/31/2017
52
Percent Outperforming
Percent Underperforming
Source: Standard & Poor's SPIVA U.S. Scorecard
THIRD WORLD – OPPORTUNITY?
50%
22% 18%
-50%
-78% -82%
1 Year 5 Year 10 Year
Global Funds
53
46%29%
18%
-54%-71%
-82%
1 Year 5 Year 10 Year
International Funds
46%29%
18%
-65%-78% -85%
1 Year 5 Year 10 Year
EM Funds
Percent Outperforming
Percent Underperforming
Source: Standard & Poor's SPIVA U.S. Scorecard
THIRD WORLD – OPPORTUNITY?
54
35%60%
100%
-65%-40%
1 Year 5 Year 10 Year
Frontier Markets Funds
Percent Outperforming
Percent Underperforming
Source: Standard & Poor's SPIVA U.S. Scorecard
THIRD WORLD – OPPORTUNITY: LOCAL BEHAVIOR IN BANGLADESH
Our retail investors are just trying to follow the others, keen to know what the so called ‘gamblers’ are going to buy:
• “I heard this share's price will jump, because some gambler is going to buy it“
In our market, we have some stocks like Apex foods, Apex tannery, Apex footwear, Apex Spinning, Apex weaving etc. These companies are doing different kinds of business. Some are involved in textiles, some in foods and some in footwear.
• If there is a good news for say… Apex footwear- that is involved in footwear business, all companies that name begin with Apex will start rising.
They are acting as a group even though the business is different and the owners are different for some companies.
55
THIRD WORLD – OPPORTUNITY: LOCAL BEHAVIOR IN BANGLADESH
We have different multinational companies that are involved in different business that are totally different from other multinational’s business.
• For example, Bata is multinational company involved in footwear business where British American Tobacco involved in tobacco business that has no relation with Bata.
When the multinationals start rising, all multinationals start rising together
Investors have a general preference of stock dividend over cash dividend. They always like to have stock dividend. If a cash dividend paying company declares stock dividend, the price will immediately start jumping.
Low Price/Share or Price/Par Value
56
THIRD WORLD – OPPORTUNITY: BID-ASKED SPREADS => INEFFICIENCY
57
Ask - Bid / Last
Frontier Iceland 1.2%
Frontier Georgia 1.2%
Emerging Peru 1.2%
Developed Hong Kong 1.2%
Frontier Slovenia 1.4%
Frontier Jordan 1.4%
Frontier Bulgaria 1.4%
Frontier Senegal 1.5%
Developed Australia 1.5%
Frontier Cyprus 1.6%
Frontier Bahrain 1.6%
Frontier Oman 1.8%
Frontier Mauritius 2.0%
Frontier Tanzania 2.1%
Frontier Sri Lanka 2.5%
Frontier Ukraine 2.6%
Frontier Jamaica 2.6%
Frontier Ghana 2.7%
Frontier Lebanon 3.2%
Frontier Mongolia 3.3%
Emerging Egypt 3.3%
Frontier Nigeria 4.2%
Emerging Morocco 5.7%
Frontier Kenya 9.1%
Frontier Costa Rica 9.4%
Frontier Papua New Guinea 9.7%
Country Name Last Price Bid AskAsk - Bid
% Last
Emerging Philippines DA VINCI CAPITAL 4.50 2.33 5.4 68.2%
Frontier BOTSWANA CHOPPIES LTD 40.00 40 67 67.5%
Developed Hong Kong C P NEW ENERGY 0.38 0.26 0.49 60.5%
Emerging Thailand MAX METAL CORP P 0.02 0.02 0.03 50.0%
Frontier Panama PANAMA POWER HOL 5.95 5 7.95 49.6%
Developed Hong Kong KATE CHINA HOLDI 0.21 0.21 0.31 47.6%
Frontier Egypt VODAFONE EGYPT 109.32 76 117 37.5%
Frontier Venezuela FVI-B 20.40 17 24.48 36.7%
Developed Germany SOLARWORLD AG 0.14 0.14 0.188 34.3%
Emerging Thailand U CITY PCL 0.03 0.03 0.04 33.3%
Developed Hong Kong ECHO INTERNATION 0.10 0.09 0.119 30.5%
Frontier Jamaica SUPREME VENTURES 24.00 17 24 29.2%
Developed Hong Kong TOPSEARCH INTL 1.00 0.71 1 29.0%
Emerging China SHEEN TAI HOLDIN 0.27 0.198 0.27 26.7%
Frontier Mauritius CIEL TEXTILE LTD 44.15 36 47.5 26.0%
Frontier Morocco CIMENTS DU MAROC 1,549 1402 1800 25.7%
Emerging South Africa AVENG LTD 4.00 3 4 25.0%
Source: Bloomberg, Based on 700 frontier and 6800 EM stocks, October 2018
Ask - Bid / Last
Average Median
Developed 0.64% 0.26%
Emerging 0.83% 0.30%
Frontier 4.21% 1.55%
THIRD WORLD – OPPORTUNITY: FRONTIER VOLATILTY IS LOW
58
Significantly lower volatility than emerging equities: U.S. 12.1%EAFE 11.5%Emerging Markets 14.9%Frontier ex-GCC 12.2%
THIRD WORLD - FRONTIER VOLATILTY IS LOW BECAUSE
59
Frontier Intercountry Correlations Are Low
THIRD WORLD – OPPORTUNITY: DIVERSIFICATION BENEFITS
60
Frontier Markets have a veryLow Correlation with the MSCI US:
EAFE versus MSCI US 0.76EM versus MSCI US 0.63Frontier versus MSCI US 0.38
And Frontier Markets have a Low Correlation with Emerging Markets:
Frontier versus EM 0.64
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
Dec-7
9
Dec-8
0
Dec-8
1
Dec-8
2
Dec-8
3
Dec-8
4
Dec-8
5
Dec-8
6
Dec-8
7
Dec-8
8
Dec-8
9
Dec-9
0
Dec-9
1
Dec-9
2
Dec-9
3
Dec-9
4
Dec-9
5
Dec-9
6
Dec-9
7
Dec-9
8
Dec-9
9
Dec-0
0
Dec-0
1
Dec-0
2
Dec-0
3
Dec-0
4
Dec-0
5
Dec-0
6
Dec-0
7
Dec-0
8
Dec-0
9
Dec-1
0
Dec-1
1
Dec-1
2
Dec-1
3
Dec-1
4
Dec-1
5
Dec-1
6
Dec-1
7
Dec-1
8
Three Year Rolling Correlation vs. S&P 500
MSCI EAFE
Source: MSCI, S&P Dec 2018
MSCI EAFE = .76 = RSQ .58MSCI EM = .63 = RSQ .40Frontier = .38 = RSQ .14
EAFE
MSCI EM
EM
Frontier
MSCI Frontier
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
Dec-0
5
Ju
n-0
6
Dec-0
6
Ju
n-0
7
Dec-0
7
Ju
n-0
8
Dec-0
8
Ju
n-0
9
Dec-0
9
Ju
n-1
0
Dec-1
0
Ju
n-1
1
Dec-1
1
Ju
n-1
2
Dec-1
2
Ju
n-1
3
Dec-1
3
Ju
n-1
4
Dec-1
4
Ju
n-1
5
Dec-1
5
Ju
n-1
6
Dec-1
6
Ju
n-1
7
Dec-1
7
Ju
n-1
8
Dec-1
8
Frontier with Emerging Markets Correlation (36 month rolling)
Source: MSCI, Dec 2018
Frontier vs EM = .64 = RSQ .41
Correl MSCI Frontier vs EM
THIRD WORLD - OPTIMIZATION: STARTING WITH A NICE FRONTIER CURVE:
61
% Return Return
MSCI Emerging Frontier Market
Return 11.6 6.7 Return
Standard Deviation 15.7 14.2 Standard Deviation
Correlation 68%
Min Variance 35% 65%MSCI Emerging % Frontier Market %
Utility Slope 1.1 78% 23%Standard Deviation (36 months) Sep-17
USA 10.1%
EAFE 12.3%
Emerging Markets 15.7%
Frontier ex-GCC 11.2%
Correlation (36 Months) Sep-17
Frontier ex-GCC versus EM 0.68
-10.0
0.0
10.0
20.0
30.0
0.0 5.0 10.0 15.0 20.0 25.0
An
nu
alize
d R
etu
rn
Annualized Standard Deviation
Efficient Frontier
Utility Curves
Emerging Frontier1) Expected Returns 11.6% est 6.7% est2) Standard Deviations 15.7% 14.2%3) Correlation 0.68 (Actual Sept 2017 – 36 mos) 4) Utility: What is Your Lambda = Optimal Slope of Return Change / Risk Change
Minimum Variance 35% EM 65% FrontierLambda = 1.1 78% EM 23% Frontier
Source: FMAM, MSCI, Russell
Source: FMAM, MSCI, Russell
THIRD WORLD - OPTIMIZATION: USING ACTUAL STANDARD DEVIATIONS
62
Emerging Frontier1) Expected Returns 11.6% 6.7%2) Standard Deviations 15.7% 11.2% (Actual)3) Correlation 0.68 (Actual Sept 2017 – 36 mos) 4) Utility: What is Your Lambda = Optimal Slope of Return Change / Risk Change
Minimum Variance 5% EM 95% FrontierLambda = 1.1 43% EM 57% Frontier
% Return Return
MSCI Emerging Frontier Market
Return 11.6 6.7 Return
Standard Deviation 15.7 11.2 Standard Deviation
Correlation 68%
Min Variance 5% 95%MSCI Emerging % Frontier Market %
Utility Slope 1.1 43% 58%Standard Deviation (36 months) Sep-17
USA 10.1%
EAFE 12.3%
Emerging Markets 15.7%
Frontier ex-GCC 11.2%
Correlation (36 Months) Sep-17
Frontier ex-GCC versus EM 0.68
-10.0
0.0
10.0
20.0
30.0
0.0 5.0 10.0 15.0 20.0 25.0
An
nu
alize
d R
etu
rn
Annualized Standard Deviation
Efficient Frontier
Utility Curves
Source: FMAM, MSCI, Russell
THIRD WORLD - OPTIMIZATION: USING SLIGHTLY HIGHER RETURN EST
63
Emerging Frontier1) Expected Returns 11.6% est 9.7% est (Up from 6.7%)2) Standard Deviations 15.7% 11.2% (Actual)3) Correlation 0.68 (Actual Sept 2017 – 36 mos) 4) Utility: What is Your Lambda = Optimal Slope of Return Change / Risk Change
Minimum Variance 5% EM 95% FrontierLambda = 1.1 18% EM 82% Frontier
% Return Return
MSCI Emerging Frontier Market
Return 11.6 9.7 Return
Standard Deviation 15.7 11.2 Standard Deviation
Correlation 68%
Min Variance 5% 95%MSCI Emerging % Frontier Market %
Utility Slope 1.1 18% 83%Standard Deviation (36 months) Sep-17
USA 10.1%
EAFE 12.3%
Emerging Markets 15.7%
Frontier ex-GCC 11.2%
Correlation (36 Months) Sep-17
Frontier ex-GCC versus EM 0.68
-10.0
0.0
10.0
20.0
30.0
0.0 5.0 10.0 15.0 20.0 25.0
An
nu
alize
d R
etu
rn
Annualized Standard Deviation
Efficient Frontier
Utility Curves
Source: FMAM, MSCI, Russell
THIRD WORLD - OPTIMIZATION: CHOOSING A RISK/REWARD TRADE-OFF
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Emerging Frontier1) Expected Returns 11.6% est 9.7% est2) Standard Deviations 15.7% 11.2% (Actual)3) Correlation 0.68 (Actual Sept 2017 – 36 mos) 4) Utility? What is Your Lambda = Slope at Optimal Return Change / Risk Change
% EM / % Frontier Stdev Return Stdev Chg Rtn Chg Risk/Rtn Slope Risk/Reward
100 / 0 15.7% 11.6% 0.40% 0.10% 0.2 4.2x
95 / 5 15.3% 11.5% 0.39% 0.10% 0.2 4.1x
90 / 10 14.9% 11.4% 0.37% 0.10% 0.3 3.9x
85 / 15 14.5% 11.3% 0.36% 0.10% 0.3 3.8x
80 / 20 14.2% 11.2% 0.35% 0.10% 0.3 3.6x
75 / 25 13.8% 11.1% 0.33% 0.10% 0.3 3.5x
70 / 30 13.5% 11.0% 0.31% 0.10% 0.3 3.3x
65 / 35 13.2% 10.9% 0.30% 0.10% 0.3 3.1x
60 / 40 12.9% 10.8% 0.28% 0.10% 0.3 2.9x
55 / 45 12.6% 10.7% 0.26% 0.10% 0.4 2.7x
50 / 50 12.4% 10.6% 0.23% 0.10% 0.4 2.4x
45 / 55 12.1% 10.5% 0.21% 0.10% 0.5 2.2x
40 / 60 11.9% 10.5% 0.19% 0.10% 0.5 1.9x
35 / 65 11.7% 10.4% 0.16% 0.10% 0.6 1.7x
30 / 70 11.6% 10.3% 0.13% 0.10% 0.7 1.4x
25 / 75 11.4% 10.2% 0.11% 0.10% 0.9 1.1x
20 / 80 11.3% 10.1% 0.08% 0.10% 1.2 0.8x
15 / 85 11.3% 10.0% 0.05% 0.10% 2.0 0.5x
10 / 90 11.2% 9.9% 0.02% 0.10% 5.2 0.2x
Source: FMAM, MSCI, Russell
REVENGE OF THE THIRD WORLD
• Developed Markets• “End of an Era” - Kissinger• Populism up, Trust down• Values?
• Third World• Growth• Demographics• Productivity• Middle Class
• Opportunity• World Growth• Valuations• Inefficiency• Diversification
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THIRD WORLD – OPPORTUNITY
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Beiruit, 2011
DISCLOSURE
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The information contained in this document is intended for discussion and/or purposes only. The information contained within is proprietary and confidential and is intended solely for the recipient to who it is presented by Frontier Global Partners. Any such offering may be made pursuant to a private offering memorandum and subscription agreement furnished to prospective accredited investors, which discusses the suitability of the investment opportunity, associated fees, and risks associated with the offering. Any private placement investment could be deemed speculative, involving high-risk and volatility, and there is no assurance that the offering will achieve its objectives. The information contained herein from third parties, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable. All materials presented are for one-on-one presentation to financial professionals or institutional client/qualified accredited investor use only and are not intended for distribution to the public. Investing in securities and private funds involves a significant risk of loss. Frontier Global Partners investment recommendations are subject to various market, currency, economic, political and business risks, and such investment decisions may not always be profitable. Clients should be aware that there may be significant loss or depreciation to the value of a client’s investment account(s), which the client should be prepared to bear. There can be no assurance that a client’s investment objectives will be obtained and no inference to the contrary should be made. Under no circumstances does the information contained within represent a recommendation to buy or sell securities. A credit rating of BB+, BBB and BBB- means that an obligor has adequate capacity to meet its financial commitments. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments. Past performance is not an indication of future returns. MSCI Indices are unmanaged market indices generally considered representative of the stock market as a whole.
Direct comparisons between the fund's performance and equity market indices are not without complications. The fund's portfolio may contain options and other derivative securities, fixed income investments, may include short sales of securities and margin trading and may not be as diversified as market indices. The indices may be unmanaged, may be market weighted, and unlike the fund, indices do not incur fees and expenses. Due to the differences among the fund's portfolio and the performance of equity market indices, no such index is directly comparable to the investment strategy of the fund.
The fund is subject to a variety of risks, including but not limited to: investments may be speculative and subject to a high degree of risk; investments may be illiquid; an investor could lose all or a substantial amount of any investment in the fund; there is no secondary market for interests in the fund nor is one expected to develop, and there are substantial restrictions on transferring an investment in the fund; the fund's portfolio may be leveraged and experience volatility; fees and expenses of the fund may be higher than those of other investments and will reduce the portfolio return. Consult the fund's offering memorandum for complete risk disclosures and other important information.
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THIRD WORLD – VALUATIONS
Source: MSCI, Bloomberg, May 2018
Forward PE Universe
US Stocks, 2,198
Developed ex-US, 3,907
EM , 3,721
Frontier ex-GCC, 495
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FIRST WORLD
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Source: Wall Street Journal Catch 22 of Globalization, January 22, 2019
THIRD WORLD - TECHNOLOGY
70
FIRST WORLD
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Source: Wall Street Journal Catch 22 of Globalization, January 22, 2019
FIRST WORLD
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Source: Wall Street Journal Catch 22 of Globalization, January 22, 2019
FIRST WORLD
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Source: Wall Street Journal Catch 22 of Globalization, January 22, 2019
FIRST WORLD - VALUES
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Source: New Yorker