Why Frontier Market ETFs Are Appealing

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Includes: AFK, ECH, EGPT, EPOL, EPU, EZA, FRN, MES, PLND, PMNA
by: Tom Lydon

Frontier market exchange traded funds present people with the opportunity to invest in regions and areas that would otherwise be unavailable for the average retail investor. These up-and-coming, rapidly growing countries may help diversify your portfolio.

An investor may consider frontier markets because they may experience rapid economic growth, the economies have low or no correlation with emerging and developed markets, and these countries store a large supply of natural resources, writes Kevin Grewal for TheStreet. And don’t forget this important point: developing markets are accounting for an increasingly larger piece of the global market cap.

Countries designated as “frontier markets” include Africa, specifically Egypt and South Africa, the Persian Gulf, Middle Eastern countries like Kazakhstan and the United Arab Emirates, parts of Eastern Europe, such as Poland, and parts of Latin America like Bolivia, Peru and Chile.

  • Market Vectors Egypt Index (NYSEARCA:EGPT)
  • iShares MSCI South Africa Index Fund (NYSEARCA:EZA)
  • Market Vectors Poland ETF (NYSEARCA:PLND)
  • iShares MSCI Poland Investable Market Index Fund (NYSEARCA:EPOL)
  • iShares MSCI All Peru Capped Index (NYSEARCA:EPU)
  • iShares MSCI Chile Investable Mkt Idx (BATS:ECH)

Some ways to gain exposure to these regions include:

  • Claymore/BNY Mellon Frontier Markets (NYSE:FRN). FRN, which has an expense ratio of 0.65% and has 46 holdings, includes country allocations to Egypt, Colombia, Kazakhstan, Chile Chile, Poland, Lebanon, Nigeria, Peru and Oman. Major sector allocations include financials, metals and mining and telecommunications.
  • Market Vectors Gulf States ETF (NYSEARCA:MES). MES, which has an expense ratio of 0.98% and has 41 holdings, includes country allocations of Kuwait, Qatar, the United Arab Emirates and Oman. The fund is heavily invested in financials.
  • Market Vectors Africa ETF (NYSEARCA:AFK). AFK, which has an expense ratio of 0.83% and has 50 holdings, includes country allocations of South Africa, Morocco, Nigeria and Egypt, in addition to Canada, the United Kingdom and Kuwait. The ETF focuses on telecommunications, commodities and financials.
  • PowerShares MENA Frontier Countries Portfolio (NASDAQ:PMNA). PMNA, which has an expense ratio of 0.70% and has 35 holdings, includes country allocations of Kuwait, Jordan, the United Arab Emirates, Morocco, Egypt and Oman. The fund differs from MES in that MES includes holdings outside of the Middle East.