Frontier Funds

Date: February 1, 2014      Publication: Bottom Line Personal      Source:  Neena Mishra, CFA, Zacks Investment Research      Print:

If you were to combine the stock market value of all the companies on exchanges in Argentina, Kazakhstan, Kuwait, Nigeria, Qatar and Vietnam, the total would be less than that of Apple Inc. And yet some of the most intriguing stocks in the world are on those and a few dozen other exchanges that are collectively known as “frontier” markets. They are called that because they are even more volatile and risky than so called “emerging” markets. For investors, the frontier markets offer some of the biggest opportunities in the developing world. While economic growth and the expanding middle class in “established” emerging-market countries such as China and Brazil are likely to slow down over the next decade, some frontier markets are just beginning to benefit from these types of growth. Many of the companies in these countries are so small that major foreign investors ignore them, creating great bargains for investors who can recognize their value.

Two new but attractive and inexpensive exchange-traded funds (ETFs) focused on frontier markets…

  • iShares MSCI Frontier 100 ETF (FM), which was launched in September 2012, holds about 100 of the largest frontier-market companies based on market capitalization. It gained 23.7% in 2013. (Larger companies are more likely to survive in these volatile economies.)
  • EGShares Beyond-BRICs ETF (BBRC), launched in August 2012, has about 90 stocks. It keeps 25% of its portfolio in frontier markets and 75% in more established emerging markets but not the most established ones of Brazil, Russia, India and China (known collectively as the BRICs). It was down 3.8% in 2013 because of the poor performance of the more established emerging markets last year, but over time, it is likely to outperform the typical emerging-markets index.


Source: Neena Mishra, CFA, ETF research director at Zacks Investment Research, Chicago.