The New Frontier Markets ETF: Can You Handle It?

There is new blood in the ETF universe, and its not commodities or leveraged funds; it is the blood of the new frontier of investing, known as the frontier markets. On Thursday June 12, Claymore launched its Frontier Markets ETF (FRN), which will attempt to track the Bank of New York Mellon New Frontier DR Index [BKNFR]. Here is a brief snippet from Claymore on what comprises the index:

The Frontier Index tracks the performance of depositary receipts in American depositary receipts ("ADR") or global depositary receipts ("GDR") form that trade on the London Stock Exchange ("LSE"), New York Stock Exchange ("NYSE"), American Stock Exchange ("AMEX") and Nasdaq Stock Market ("NASDAQ") of companies from countries that are part of the Frontier Market, as defined by the Index Provider.

The Index Provider currently defines the Frontier Market countries as: Bahrain, Jordan, Kuwait, Lebanon, Oman, Qatar, United Arab Emirates, Egypt, Ghana, Kenya, Malawi, Mauritius, Morocco, Nigeria, Tunisia, Zimbabwe, Bulgaria, Croatia, Czech Republic, Estonia, Georgia, Kazakhstan, Latvia, Lithuania, Poland, Romania, Slovak Republic, Slovenia, Ukraine, Bangladesh, Pakistan, Papua New Guinea, Sri Lanka, Vietnam, Peru, Chile, Colombia, Ecuador, Jamaica, Panama and Trinidad & Tobago.

As of May 23, 2008, the Index's constituent countries were represented (in approximate market capitalization) in the Index as follows: Poland 25.0%, Chile 21.0%, Egypt 17.1%, Kazakhstan 7.8%, Peru 5.3%, Czech Republic 5.2%, Nigeria 3.4%, Lebanon 3.2%, Pakistan 3.0%, Oman 2.4%, Columbia 2.3%, Croatia 1.8%, Bahrain 1.4%, Georgia 0.7% and United Arab Emirates 0.5%.

Currently FRN's total market cap is just shy of $4,000,000 and has an expense cap of 0.65%. The top ten holdings are names you probably have never heard of, and are as follows:

• BANK PEKAO SA 7.94 %
• TELEKOMUNIKACJA POLSKA 6.52 %
• ORASCOM TELECOM HOLDING S 6.11 %
• KAZMUNAIGAS 5.23 %
• MINAS BUENAVENTURA ADR REP 2 SER'B'PEN1 5.20 %
• ORASCOM CONSTRUCTION INDU 5.03 %
• POLSKI KONCERN NAFTOWY OR 5.03 %
• KGHM POLSKA MIEDZ SA 5.03 %
• EMPRESA NAC ELEC-CHIL ADR 4.88 %
• ENERSIS-ADR 4.21 %

PowerShares recently announced that it would be launching its own frontier market ETF with the planned ticker of PMNA. The fund will be based on the NASDAQ OMX Middle East North Africa Index, which is comprised of the largest and most liquid securities in Egypt, Morocco, Oman, Lebanon, Jordan, Kuwait, Bahrain, Qatar and the UAE.

Disclosure: None

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Comments

[Xyrus:]

The problem is that for a frontier market etf, it certainly has ALOT of emerging markets in there. I think I'll a bit longer to see what else comes out before jumping onto this ETF.

~X~

2008 Jun 16 12:30 PM

[DaveW:]

Why go to the trouble of constructing this fund in such a way that three countries comprise 2/3 of the portfolio?? Baffling... But I do wish the Three Musca-frontiers Fund, and its investors, all the best!

2008 Jun 16 03:17 PM

[Etf Planet:]

Good point DaveW, there should be a few more of these coming out and hopefully their construction is a little more creative. The best Frontier I've seen to date is through a MF(TRAMX).

2008 Jun 17 02:39 AM

[David Hunkar:]

I don't like this heavy weightage for a handful of countries either especially for a "Frontier" market ETF. Good idea to wait and watch this thing.

2008 Jun 17 05:31 PM