The Risks and Rewards of Frontier Market ETFs | ETF Trends

Once thought to be a risky venture, investors are increasingly branching out beyond the old standby developed economies and exploring smaller economies that are in varying stages of growth. Though there’s no denying the potential benefits global exchange traded funds (ETFs) offer, it’s important to be aware of the risks, as well.

Of all the global markets open for investing, frontier markets can be among the riskiest.

What Are Frontier Markets?

Frontier markets are loosely defined as countries or regions that are just a tad further below the development stage of emerging markets. This group of international states includes most African countries, some Southeast Asian countries, a few Latin American countries and parts of Eastern Europe.

Frontier markets are either smaller than traditional emerging markets or include countries that restrict foreign investments. These markets are exceptionally risky, but investments in frontier markets offer above average returns over time. Additionally, frontier economies have a low correlation with traditional investments.

These economies have further to go than emerging markets, which means that as they develop, there’s greater reward.