Since early 2013, much has been made about the advantages of frontier markets and the utility of the exchange traded funds that make these previously hard-to-access markets accessible.
Much of that attention has lauded on the iShares MSCI Frontier 100 ETF (NYSEArca: FM) and rightfully so. Over the past year while the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), the two largest emerging markets ETFs by assets, are up an average of just 3.7%, FM has surged 31.5%. [The Promise of Frontier Markets]
FM will not celebrate its second anniversary until September, but the ETF already has more than $740 million in assets under management, $238 million of which has come into the fund just this year. However, FM is not the only ETF with frontier exposure that money managers are allocating capital to.
In another sign of increased willingness by professional investors to add frontier markets exposure, both the Global X Next Emerging & Frontier ETF (NYSEArca: EMFM) and the EGShares Beyond BRICs ETF (NYSEArca: BBRC) took in more than $100 million in a single trading day last Wednesday.
EMFM and BBRC are blended emerging/frontier markets ETFs, so neither is a dedicated frontier play like FM. However, EMFM and BBRC do not skimp on frontier exposure. Just a couple of months after it debuted last year, BBRC transitioned to the FTSE Beyond BRICs Index in October, allowing the ETF to carry up to 25% frontier markets exposure. The ETF also excludes Taiwan an the BRIC nations. [Beyond BRICs ETF Changes Indexes]
The move is working out well. BBRC is up nearly 8% in the past month, has more than $100 million in assets and currently features exposure to five frontier markets, excluding Qatar and United Arab Emirates.
South Korea, Taiwan and the BRIC nations are excluded from EMFM’s lineup. While EMFM is one of the few ETFs with exposure to what may appear to be rough and tumble markets such as Pakistan, Bangladesh, Gabon and Laos, the fund’s overall exposure to such markets is small relative to the aforementioned emerging markets. EMFM also diminishes single stock risk by into devoting more than 1.5% of its weight to any of its roughly 200 holdings. [Emerging, Frontier Markets in One ETF]
Excluding Qatar and UAE, EMFM offers exposure to 17 frontier markets, though one index provided classifies Egypt as a frontier market, so it can be said EMFM has exposure to 18 such markets. Investors probably are not complaining as EMFM is up 6.2% in the past month and 9.5% year-to-date.
Right or wrong, the $100 million mark is often seen as validation of an ETF’s credibility, meaning inflows to BBRC and EMFM are just getting started.
Global X Next Emerging & Frontier ETF
