Innovation Or More Newfangled Nonsense?
An open letter

"Da-vy, Davy Crockett. King of the wild frontier!"

So went the refrain of a television program of the '50s and '60s that inspired me to beg, plead for and—heaven help me—wear an itchy ‘coonskin cap.

I find myself developing a certain familiar scalp itchiness whenever I see the marketing material for frontier funds. According to the brochures and fact sheets, the targets of these products, the so-called frontier markets, are less developed than "traditional" emerging markets.

Now, that's a head scratcher.

To the degree the advertising collateral rates high on the oxymoron scale—(traditional emerging markets?)—the funds described therein rank low in correlation to indicia such as BRIC (Brazil, Russia, India and China). Or, at least they should. The message conveyed through the advertising is that savvy investors should consider moving to the "next level"—decreasing their correlation and increasing their diversification—by owning assets in such sub-emergent venues as Vietnam, Zimbabwe and Kazakhstan.

Despite the ballyhoo about the "nontraditional" markets represented in benchmarks like the S&P Frontier Markets Index, these frontier funds still look an awful lot like BRIC products. The S&P benchmark could be, in fact, appropriately classified as a BRICK for its heavy weighting of names from Brazil, Russia, India, China and Korea.

If you're thinking of joining the frontier market fray yourself, let me offer some unbidden (and, perhaps, unwelcome) advice.

Index providers defend their mixing of emergent-country, that is, traditional companies into the frontier benchmarks as a way to dampen volatility and enhance liquidity. To my mind, though, that makes as much sense as building an index alphabetically. A comprehensive "A" fund could be cobbled together with representative companies from the bourses in Tirana (Albania), Algiers (Algeria), Luanda (Angola), Buenos Aires (Argentina), Sydney (Australia) and Vienna (Austria), but who'd want it?

For heaven's sake, if you're going to build an index, build one that has meaning. Or at least send me on the due diligence circuit. Your choice.

You have to do better than advertising these new products simply as MENA (Middle East, North Africa), or EMEA (Eastern Europe, Middle East and Africa), too. Several index manufacturers find themselves squabbling over these territories. We all know what advantage accrues to the first mover in this business. Latecomers are usually left only crumbs. These geographies just aren't distinct enough, anyway. On top of that, the acronyms are dull.

No, to make frontier products really stand out, their monikers need to be punched up. For example, the combination of certain EMEA elements with countries in the Trans-Ural and Caucasus regions could be packaged as an oil producers' index—EMETC—which, if nothing else, speaks of the effect the price of its principal export has on Western consumers nowadays.

There's plenty of room, too, for specialization in markets that are not currently part of recognized trading blocs. Who'll be the first, I wonder, to claim rights to a benchmark based upon the League of Ignorable Nations? Or to launch a fund based upon the Caribbean Junket Cruise Index?

Then there's the marketing collateral itself. Dull as a drawerful of butter knives, that stuff. Where are the fun facts about the component countries? Don't you think it's important for investors to know that business in Kazakhstan has to be conducted in Russian because there are no Kazak words for many economic terms? Or that Sri Lanka leads the world in the number of public holidays? Investors booking appointments to look over their acquisitions in Addis Ababa should know the Ethiopian calendar has 13 months, shouldn't they?

Oh, one more thing. You might consider scrapping the usual advertising tchotchkes in favor of 'coonskin caps. Rakishly sported by your marketing staff and given away at conferences, these babies will really set you apart from your competition.

Good luck!