Oil’s Demise a Drain on Frontier Markets ETFs

Although it is home to just two members of the Organization of Petroleum Exporting Countries (OPEC), the iShares MSCI Frontier 100 ETF (NYSEArca: FM) has not been immune to slumping oil prices.

Over the past 90 days, the United States Brent Oil Fund (NYSEArca: BNO) and the United States Oil Fund (NYSEArca: USO) are off an average of 30.3%, making the 9.2% decline for FM over the same period look good by comparison.

However, that 9.2% drop underscores FM’s sensitivity to oil prices despite the fact that the largest frontier markets ETF allocates just 14.7% of its weight to energy stocks. That is barely more than a third of the weight the ETF devotes to the financial services sector. [Broader Horizons With Frontier ETFs]

Although FM is not excessively allocated to the energy sector, some of its largest country weights are OPEC members that are dependent on oil for an excessive percentage of government revenue. OPEC member Kuwait proves that point. Kuwait depends on oil to generate over 75% of government receipts, according to Quartz.

Kuwait is FM’s largest country weight at 25.2%, nearly double the 13.2% the ETF allocates to Nigeria, another OPEC member. Although Nigeria was not featured on the Quartz list of oil-producing nations that are dependent on crude as a revenue driver, Africa’s largest economy counts on oil exports for roughly 70% of government receipts. Not surprisingly, the Global X MSCI Nigeria ETF (NYSEArca: NGE) is off 24% over the past 90 days. [Nigeria ETF Continues to Tumble]