DB Frontier Market ETFs Premier in Europe - U.S. Next?

A new unit of Deutsche Bank (DB) has launched in Europe what it's billing as the world's first exchange-traded funds [ETFs] to venture into the smallest corners of the world.

As part of its recently formed db x-trackers platform, DB has issued two ETFs focused on so-called frontier markets. Those are the tiniest areas in emerging markets. They've been undergoing hyper-growth in the past several years, even topping their bigger emerging markets cousins.

"I've been looking forward to frontier ETFs and I'd look forward to a homegrown vehicle more accessible to U.S. investors," said Keith Newcomb, a Nashville, Tenn.-based advisor.

The db x-trackers ETFs are listed on multiple stock exchanges across Europe. Those include: Euronext Paris; Borsa Italiana; Frankfurt Xetra; London Stock Exchange and SWX Swiss Exchange. The funds will be supported by a number of market makers providing liquidity in the ETFs, according to DB in a statement.

One fund will track the FTSE Vietnam Index and the other will follow the S&P Select Frontiers Index.

The FTSE Vietnam Index comprises roughly 20 companies of the FTSE Vietnam Index that have "sufficient foreign ownership availability," DB said.

Using the broader ETF tracking S&P's Frontiers Index will provide overseas investors with an opportunity to use multiple currencies—including the U.S. dollar—to access markets such as the United Arab Emirates, Pakistan, Panama, Cambodia and Bulgaria.

"Those are some interesting economies," said Anthony Welch, a partner at Sarasota Capital Strategies. "That type of exposure could really add some unique growth attributes to a portfolio. Of course, you'd only want to digest these countries in very small slices."

The FTSE Vietnam Index seeks to mimic the performance of the Ho Chi Minh Stock Exchange in Saigon. Meanwhile, the S&P Select Frontier index includes about 30 names of frontier economies.

"Those are countries you can't get in emerging markets funds over here," Welch said. "They've got too small economies and less-developed markets to be included in most benchmarks."

He invested years ago in a fund run by John Templeton focusing on smaller countries left out of most emerging markets indexes. It ran into trouble over liquidity issues and had to close.

"We can still gain exposure in the U.S. to pretty small international countries through several emerging markets ETFs," Welch noted. "And it might be better to stay more diversified in any case. Emerging markets is pretty volatile as a region."

So he's not that anxious to see a frontiers ETF on this side of the Atlantic Ocean. Instead, he likes SPDR S&P Emerging Markets (AMEX: GMM).

While GMM's top holdings include BRICs and other larger developing countries, it also has several smaller markets. Those include: Luxembourg, Bermuda, Philippines, Peru, Jordan, Egypt and Morocco.

"It can provide some of the same frontiers-type growth, even though it has a little bit larger markets in its portfolio," Welch said.

Written by Murray Coleman

Comments

[cybertooth:]

What are the symbols for the S&P Select Frontier ETF and the FTSE Vietnam Index ETF? as traded on the London Exchange?
Thanx.

2008 Feb 27 07:14 AM