While U.S. equities have been stuck within range so far this year, frontier market stocks and related exchange traded funds have been quietly outperformed global markets.
Year-to-date, the iShares MSCI Frontier 100 ETF (NYSEArca: FM) rose 11.8%, Guggenheim Frontier Markets ETF (NYSEArca: FRN) increased 7.5% and Global X Next Emerging & Frontier ETF (NYSEArca: EMFM) gained 6.2%. Meanwhile, the S&P 500 Index was up 2.0% and the MSCI All Country World Index ex US was 3.6% so far this year.
Frontier markets include those less advanced capital markets from the developing world with an investable stock market that is less established than those in the emerging markets. Consequently, frontier market stocks are consider much riskier than other global markets and are not for the faint of heart.
The frontier markets are characterized by high volatility and are more illiquid than more developed markets. Investors may also contend with political instability and other risks.
However, these frontier countries have large and growing populations that could translate to huge growth potential. These economies could become the Brazil, Russia, India and China of tomorrow.