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FM: Frontier Markets For The Long Term


  • Frontier markets are cheap by both absolute and relative standards. Few investors bother to invest in them.
  • Frontier markets offer true diversification away from developed market politics.
  • iShares MSCI Frontier 100 ETF(FM) is far from a perfect vehicle, but it is a simple option for US based investors seeking frontier market exposure.
  • The reclassification of Kuwait to emerging market will drastically alter the iShares MSCI Frontier 100 ETF’s portfolio. Overall, the change is likely to make the fund less dependent on resources.
  • Recent volatility has made frontier markets even more compelling.

Even after the recent turmoil, US markets are still expensive by historical standards. With the coming election, the US also has geopolitical risk. Rather than hiding in cash, we’re looking for opportunities to invest elsewhere.

Not only are frontier markets already heavily discounted, they also offer the opportunity to truly diversify away from the US, China and Europe. After Invesco shut down its frontier markets ETF, the only US listed broad frontier markets ETF is the iShares MSCI Frontier 100 ETF(NYSEARCA:FM). The impending country reclassification will change FM, making it less of a resource play. Although it's far from a perfect vehicle, it offers a compelling deep value setup in the current market.


Frontier markets are cheap and undercovered, compared to both emerging and developed markets. This long term chart, rebased to start at 100, shows just how much frontier markets have lagged other major broad market indices.

FM’s P/E ratio of 11.4 is less than half the P/E ratio of the S&P 500 (SPY), and well below the MSCI EAFE index(EFA), which represents broad developed market exposure outside the US. Frontier markets are also much cheaper than emerging markets. The iShares MSCI Emerging Markets ETF(EEM) has an average P/E ratio of 14.8. Total assets in FM are a tiny fraction of other broad market ETFs as well. The table below compares the size and valuation metrics for FM, and several broad market ETFs representing exposure to emerging and developed markets.


P/E Ratio


iShares MSCI Frontier 100 ETF (FM)


$472 million

iShares MSCI Emerging Markets ETF (EEM)


$25 billion



$57 billion

SPDR S&P 500 ETF Trust (SPY)


$265 billion

Sources : ETF.com, Seeking Alpha

Current Country Allocation

FM’s invests in 16 countries that MSCI

This article was written by

Much more than closed end funds, look for hidden value, especially in investment companies and macroeconomic or industry dislocations.Areas of focus include: -NAV discounts-Liquidations-Fund restructurings-Income strategies-Shareholder activism-Macro opportunitiesI previously submitted individual stock research on Seeking alpha under the (no longer active) Afanti Arbitrage account.

Analyst’s Disclosure: I am/we are long FM, EEM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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