Frontier Fund for 401(K) plans? Not yet

It’s probably too early, but in a couple of years 401(k) plans may want to offer a “Frontier Markets” mutual fund option to plan members.

Emerging Market mutual funds have been the winners over the last ten years, pulling in returns of 368% over the decade ended March 31, 2011. That includes stocks in countries like Brazil, China, India and Mexico.

But funds in Frontier countries brought in 337% over the same period.  Those funds include companies in countries like Argentina, Nigeria, Ukraine and Vietnam.

In sharp contrast, it was the lost decade for returns in mature markets. The S&P 500 return was 22% over that decade. Investments there were dead money after inflation.

The Frontier countries collectively own about $1 trillion in GDP, or 2% of the world’s output. But their growth rates are high, and their public debt is low by western standards.

The average 401(k) plan now offers 18 options, so there will be room for one more as the stock markets in the Frontier countries mature.

High rates of return on capital are alluring, but as the cliché goes, return of capital is more important. So rigor on the regulation of the companies and stock exchanges in those countries will be the limiting factor for investment committees deciding whether to add a Frontier Markets fund to their retirement plan menu.

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  • 401K plan

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  • Nick Dobberstein

    Sounds reminiscent of all those tech funds 401Ks were deficient in during the late 90s.  Many consumers got in finally in time for the tech bubble in 2000.  Any 401K is going to be susceptible to markets, EVEN if it is diversified in such emerging markets and even that won’t help in a downswing of the market at retirement.  Here’s a novel idea, one that has traditionally provided fixed incomes that don’t run out:  pensions.