“While emerging and frontier markets may provide ample opportunity for growth, many individual countries and regions are concentrated in particular sectors and have only a handful of liquid names,” said Justin Young, Head of Capital Markets at Global X in a press release. “The Next Emerging & Frontier ETF was designed specifically to address these challenges by providing broad exposure to 35 countries and utilizing caps and liquidity thresholds in an effort to ensure diversified, high quality holdings.”
How does it fit in a portfolio?
This ETF seems like a logical choice for investors who want broad emerging market exposure, but are looking to avoid the big BRIC nations, and the nearly developed South Korean and Taiwanese markets. This strategy could result in higher growth levels, while its low expense ratio compared to its peers makes it a cheap choice as well.
However, the fund does have a very interesting mix of countries that do not really have much of a theme. Everything from Papua New Guinea and Qatar to Indonesia and Peru are included, so there is pretty diverse mix of nations in the fund.
The space is also pretty risky, and some might feel that the lack of exposure to sectors that benefit from demographic trends—like consumer and health care—are lacking.
ETF Competition and Bottom Line
There are literally dozens of other emerging market ETFs trading, so there is no shortage of other options for investors. However, there are a few frontier market ETFs currently trading, and these look to be the true competitors for the new Global X product (see all the Emerging Market ETFs here).
The two products in this space are the iShares MSCI Frontier 100 Index Fund (FM) and the Guggenheim Frontier Markets ETF (FRN). The two combine to possess about $450 million in assets under management, and thus are relatively popular with investors (though the lion’s share is in FM).
This could create a bit of a roadblock for EMFM, but it is important to note that the Global X fund handily beats both on the expense front, so it could attract cost conscious investors. Still, the other two are ‘pure’ frontier market funds, so one could argue that they are different from the Global X fund.
It will be interesting to see if investors agree with this assessment, or if they view this as a better way to gain exposure to the emerging market space. This could be especially true for those who are sick of the somewhat overbearing influence of the six mega nations that tend to dominate most developing world investments, though only time will tell if EMFM is their preferred way to accomplish this task.
This article is brought to you courtesy of Eric Dutram.