Frontier markets are countries with investable stock markets that are less established than those in the emerging markets. They are developing countries but are too small and underdeveloped to be considered emerging markets at the present time. Frontier market investments are most suitable for investors who can handle very high risks as they seek high potential returns. Countries considered frontier markets generally have low liquidity levels, political instability, very little financial regulation and/or accounting standards, and volatile currency markets. Depending on the institution making the classification, there are about 24 to 40 different frontier markets globally. These three frontier market mutual funds may be worth considering, even though they have some of the highest expense ratios of funds in this category.

Morgan Stanley Frontier Emerging Markets Portfolio (MFMLX)

The Morgan Stanley Frontier Emerging Markets Portfolio ("MFMLX") seeks capital appreciation by investing in the stocks of companies located in frontier markets. It uses a top-down investment approach to select country allocation and a bottom-up process to select individual investments. The fund's inception date was Sept. 14, 2012 and it has an expense ratio of 2.7%. As of March 31, 2016, the portfolio had 58 different holdings, of which 85% were companies with market capitalizations of $5 billion or less.

This mutual fund has a very balanced allocation across frontier regions in the world, including the Middle East, South America, Asia, Eastern Europe and Africa. Disregarding the top three holdings, which account for about a third of the portfolio, no other country has a portfolio weight of more than 7.5%. Against the MSCI Frontier Markets index, the fund has one of the lowest tracking errors of funds in this category: 4.91%. The fund has great upside capture (99.98%) and downside capture (90.17%) ratios against this index. If you want a fund that matches the performance of the index nearly perfectly on the upside while protecting a bit more on the downside, this fund may be a good fit. The fund's current top holding is National Bank of Kuwait, representing 7.46% of the portfolio, as of March 31, 2016.

Ashmore Emerging Markets Frontier Equity Fund (EFECX)

The Ashmore Emerging Markets Frontier Equity Fund ("EFECX") seeks capital appreciation and uses a proprietary bottom-up process for selecting stocks. The fund has $53.5 million in assets under management (AUM) and an expense ratio of 2.52%. It also has a 1% load, making it the most expensive fund on this list during the first year. This fund may be worth your while depending on the regional allocation you desire. It is one of the few funds that allocates so much of its portfolio to Argentina; about one-sixth of the assets are invested in companies within that country. Another 42.3% of the portfolio is invested in Pakistan, Kuwait and the United Arab Emirates.

Against the MSCI Frontier Market index, the Ashmore Emerging Markets Frontier Equity Fund has a beta of 0.9 and a tracking error of approximately 7%. Therefore, this fund provides a good performance representation of the index. The fund is relatively new, having begun in November 2013, so meaningful capture ratios are yet available. However, against the MSCI ACWI ex-USA Index, the one-year upside ratio was 63.77% and the downside capture ratio was 74.57% as of April 6, 2016. This fund's current top holding is also National Bank of Kuwait, representing 4.2% of the portfolio, as of March 31, 2016.

Wasatch Frontier Emerging Small Countries Fund (WAFMX)

The Wasatch Frontier Emerging Small Countries Fund ("WAFMX") is unique because it focuses on frontier markets but invests specifically in companies that have market capitalizations of $3 billion or less. It aims to take advantage of opportunities in these countries, especially those that arise due to deregulation and trends in demographics. As of August 2016, the fund had $652 million in AUM and an expense ratio of 2.25%. Half of the portfolio's top 10 countries are not in the top 10 of the Morgan Stanley Frontier Emerging Markets Portfolio or the Ashmore Emerging Markets Frontier Equity Fund. Thus, the Wasatch Frontier Emerging Small Countries Fund provides a unique allocation to frontier markets. With a 35.4% allocation to the continent, the Wasatch Frontier Emerging Small Countries Fund invests more in Africa than any other fund. The fund's top holding is Vietnam Dairy Products, representing 5.02% of the portfolio.

Risk statistics versus this index are not readily available, but Morningstar has calculated that the beta of the fund versus the MSCI ACWI ex-USA index is 0.47. The upside capture ratio is 47.84% and the downside capture ratio is 59.08% against this index.

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