ETF Chart of the Day: Frontier Markets

October 23rd at 10:16am by Paul Weisbruch, Street One Financial

In the middle of September of this year iShares announced the launch of iShares MSCI Frontier 100 (NYSEArca: FM), and the fund has attracted roughly $14 million since inception. Tracking the MSCI Frontier 100 Index as its name suggests, FM is designed to own the 100 largest equities in the “universe” of Frontier Market names as provided by MSCI.

According to the issuer, advantages of Frontier Market investing include correlations to U.S. equity markets of about 0.5 over the past three year period. Additionally, about 30% of the total global population is spread across Frontier nations, while forecasts have many of the Frontier nations among the world’s fastest growing economies. [iShares Readies Frontier Market ETF]

Frontier nations that MSCI includes in their universe include Kuwait, Qatar, UAE, Nigeria, Kazakhstan, Pakistan, Argentina, Oman, Vietnam, and Kenya and we point out that these nations have demonstrated rather low intra-market correlations over time.

These low relative correlations ends up adding a positive element to broader portfolios in terms of the addition of non-correlated assets. Interestingly, despite what popular convention may suggest, Frontier Markets have demonstrated much less volatility than both the MSCI Emerging Markets Index as well as the S&P 500 Index in both the financial crisis of 2008 as well as in the current day marketplace. [Rethinking Risk in Frontier Markets ETFs]

Currently, top holdings in FM are allocated to the following countries: Kuwait (31.20%), Qatar (15.70%), UAE (11.70%), Nigeria (10.50%), and Pakistan (4.8%). There is another Frontier Markets based ETF on the market, FRN (Guggenheim Frontier Markets), which has been around since the middle of 2008. Tracking the BNY Mellon New Frontier DR Index, the fund has a much different make up than FM, in that top country weightings look like the following: Chile (42.65%), Colombia (14.41%), Egypt (11.33%), Peru (9.06%), and Argentina (7.15%).

iShares MSCI Frontier 100

For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.

Tickers