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The Case for Owning Frontier Market ETFs

August 26th, 2013

vietnamBy now, most investors are at least familiar with, if not invested in, the emerging markets. It’s an asset class that has truly come into its own over the past twenty years, bringing unimagined liquidity and opportunity to growing economies around the world through both stock and bond investment.

Lately, however, the emerging markets (NYSEARCA:EEM) have been a stark under-performer. At a time when the U.S. and most developed markets have simply been a bit soft, the emerging markets have been plunging, and understandably, investors are running for cover.

But while the so-called second string struggles, at least one big name investor says it’s time to think even smaller, and is recommending a switch into what’s known as frontier markets, which is to say, places like Vietnam and Kazakhstan and Ghana and Oman that someday hope to grow into emerging markets. “The frontier markets still remain undiscovered,” says Jack Ablin, CIO at BMO Private Bank, especially compared to the emerging markets which are now widely owned by institutions and individuals. “I believe the frontier now is where emerging markets were 13 years ago.”


To be clear, the concept of frontier markets was hatched 20 years ago in France, but today, MSCI,FTSE, and S&P each have their own list of two to three dozen nations that they consider to be frontier countries. As a result, the holdings of various index funds investing in frontier markets can be widely different, as can the performance. For example, the iShares MSCI Frontier 100 ETF(NYSEARCA:FM) is up 15 percent year to date, while the Claymore/BNY Mellon Frontier Markets ETF(NYSEARCA:FRN) version of the same is down 15 percent.

You can see the full “Breakout” interview below:


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