The Financial Industry Regulatory Authority warned investors Thursday to travel with care when considering putting money in funds focused on less-developed countries.
Finra acknowledged that investments in frontier market counties such as Argentina, Lebanon, Nigeria, Slovenia and Vietnam can offer greater diversity and “periods” of higher returns than funds for more developed emerging nations on the order of Brazil, Russia, India and China.
But the regulator cautioned the potential downside could be much greater. Finra noted that fees, geopolitical and currency risks tend to be high while liquidity, transparency and performance histories are often dangerously scant.
Some types of investments have more flavors than Baskin-Robbins, and Finra said frontier market funds are no exception. Some funds in this sector invest in more than 30 frontier markets while others concentrate on a single nation or region.
At the same time, some frontier market mutual funds and exchange-traded funds have niche holdings in a single economic sector or small number of sectors, such as banking, energy or agriculture.