New ETF Ventures Into New Frontiers
June 12th, 2008 at 6:00am by Tom Lydon
Investors have been salivating for an exchange traded fund (ETF) that
gives some exposure to frontier markets. Finally, it’s here.
Claymore this morning is expected to launch the Claymore BNY/Mellon Frontier Markets ETF (FRN), the first fund of its kind. It’s made up of American Depositary Receipts (ADRs) and Global Depositary Receipts (GDRs).
Claymore President Christian Magoon told us that he feels this
untapped area of the world has a lot to give. "They offer a lot of
return and risk potential, and there’s a low correlation to developed
and emerging markets."
One issue with emerging markets, he points out, is that as they
emerge, they tend to correlate more and more closely with developed
economies – that’s not always necessarily a great thing.
The Bank of New York Mellon came up with five criteria for what
constitutes a "frontier market," and 41 countries could be classified
as such. From that, 15 countries on four continents met the criteria
for inclusion in the actual index, which were a minimum share price of
$3, market capitalization of $100 million and trading volume of 10,000
shares a day.
The top countries represented in the fund will be Poland, Chile,
Egypt, Kazakhstan, Peru and the Czech Republic. It rebalances
quarterly, and Magoon says that new stocks may be added to the fund as
they become eligible. For example, Vietnam doesn’t have any stock that
meets the criteria, but when it does, it could be added.
Different index providers have varying criteria on what a "frontier
market" is, Magoon says. For example, based on their definition,
Goldman-Sachs defines 11 countries as frontier markets. Standard &
Poor’s defines 37, and Merrill Lynch defines 17. Of the Bank of New
York/Mellon index, "We believe it’s the broadest frontier market in the
The index allows for a range of frontier markets, some in the early
stages of frontier, while others are closer to the "emerging" side of
This long-awaited ETF could be as interesting to watch as the countries it tracks.
Also anticipated is the PowerShares MENA Frontier Countries Portfolio (PMNA). Around 50 companies will be part of the underlying index and a majority of the assets will be in Nigeria, Egypt, Morocco, Oman, Lebanon, Jordan, Kuwait, Bahrain, Qatar and United Arab Emirates.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.