Frontier markets are on the rise again this year. Even with elevated geopolitical tensions, the iShares MSCI Frontier 100 ETF (NYSEArca: FM) has managed to extend its out-performance of the iShares MSCI Emerging Markets ETF (NYSEArca: EEM).
With $791. million in assets under management, FM is the dominant frontier markets ETF, but another frontier fund is starting to assert itself. The Global X Next Emerging & Frontier ETF (NYSEArca: EMFM) is one of this year’s fastest growing ETFs with inflows of $142 million. That equates to 86.3% of the fund’s current assets under management tally.
Unlike FM, EMFM is not a dedicated frontier markets fund. The Global X offering, which debuted in November 2013, provides a combination of emerging and frontier markets exposure, giving investors that are skittish about frontier markets some exposure to the asset class without an all-in commitment.
EMFM tracks the Solactive Next Emerging & Frontier Index, which as its name implies, focuses more on the next breed of emerging markets. Brazil, Russia, India and China are nowhere to be found in EMFM. Nor or highly advanced emerging markets South Korea and Taiwan. [A Unique Frontier/EM ETF]
At the end of June, EMFM’s total frontier markets exposure was 26.3% across 20 countries. The ETF’s largest frontier exposures at that time were Argentina, Kazakhstan and the United Arab Emirates, which combined for just over 10% of the ETF’s weight, according to Global X data.
As has been noted, the success of EMFM along with that of the EGShares Beyond BRICs ETF (NYSEArca: BBRC), another prolific asset gatherer in its own right, underscores investors’ willingness to embrace frontier markets and their increasing desire to access emerging markets without BRIC risk.
Earlier this month, BBRC topped $250 million in assets under management. In October 2013, BBRC completed its transition to the FTSE Beyond BRICs Index, which allowed the fund to allocate up to 25% of its weight to frontier markets firms. [Beyond BRICs ETF Tops $250M in AUM]
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, there is something to be said for taking a look at frontier markets exposure. Collectively, frontier markets are historically less volatile than their emerging peers and frontier markets are trading at a 22% discount for trailing P/E and a 30% discount on P/B, according to BlackRock.
EMFM is up 13% this year.
Global X Next Emerging & Frontier ETF
Tom Lydon’s clients own shares of EEM.