Another important, but overlooked, element to Qatar and UAE departing FM is exactly how that departure is taking. While the two countries will join the MSCI Emerging Markets Index after the close of U.S. markets on May 30, that does not mean investors will wake up on May 31 to see FM with no exposure to those countries. MSCI emerging markets indices will reflect the addition of Qatar and UAE in a single tranche.
The plan to move Qatar and UAE out of FM is gradual and pragmatic, including seven tranches of reducing exposure to those countries lasting through November. [Looming Departures Could be Good for Frontier ETF]
On valuation, FM’s changes could also be positives.
“FM’s valuation could actually be more attractive because Qatar and UAE have done so well in anticipation of the emerging markets promotion,” notes Shores. “Nigeria has been a laggard, but it has good growth expectations.” [Opportunity in Nigeria]
Several members of FM currently traded at noticeable discounts to both the MSCI Emerging Markets Index, including Kazakhstan, Nigeria, Oman and Romania. Those countries currently combine for nearly 19% of FM’s weight.
iShares MSCI Frontier 100 ETF