The Next “Frontier” in Diversification?
As a result, recent studies show that in a portfolio context this asset class is not as risky as it seems. While it is true that there are a myriad of political, economic and investment risks facing frontier markets, the “blow-up” risk of any single country can be mitigated through diversification. Additionally, frontier market returns are mainly driven by localized factors, which means they have been relatively less affected by global macroeconomic events. This is demonstrated in the chart above, which shows that a diversified portfolio of frontier market equities was less volatile than the broader emerging markets index over the past five years.
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