FM ETF: Combines Frontier And Select EM Countries Into One Fund


  • As the name implies, the ETF can invest in select Frontier and Emerging Markets.  Even before MSCI tossed Russia from the EM Index this month, it was not eligible here.
  • On March 1, 2021, the Fund’s Underlying Index changed from the MSCI Frontier Markets 100 Index to the MSCI Frontier and Emerging Markets Select Index. This limits history's usefulness.
  • With this ETF now including EM stocks, I do not believe there is any pure Frontier Markets fund left, though FM still provides a high Frontier exposure percentage.
  • There are other ETFs that provide country or regional Frontier Market exposure, and several are listed at the end of the article.
  • Looking for more investing ideas like this one? Get them exclusively at Hoya Capital Income Builder. Learn More »

A world globe marked with several national flag pins

Richard Drury/DigitalVision via Getty Images

(This article was co-produced with Hoya Capital Real Estate)


I purchased my first shares of the iShares MSCI Frontier and Select EM ETF (NYSEARCA:FM) when it only invested in Frontier markets. I missed the announcement that on March 1, 2021, the Fund's Underlying Index changed from the MSCI Frontier Markets 100 Index to the MSCI Frontier and Emerging Markets Select Index. That means there is only one year of return data under the new strategy, though I will show a longer performance history; just keep the Index change in mind. With the new Index giving Frontier stocks a minor part of the ETF, I would be a seller of the FM ETF.

While it does not affect this ETF, both MSCI and FTSE have removed Russia from their respective set of indices due to Putin's Ukrainian invasion. Since the stocks are basically untradeable, they probably had no other choice.

Taking a look back

Frontier market returns

From the above chart, investing in Frontier stocks has not done well since 2007. They do provide a low correlation to other International and US stocks, but as the chart shows, at a steep performance hit.

Defining the Universe of Potential Countries

Index providers do not agree 100% as to where to place every country. South Korea is still Emerging in FTSE indices, but not MSCI ones. Here are the current MSCI lists: Country Classifications

Since this list was posted, Russia has been removed as previously mentioned. MSCI also classifies 23 countries as Developed and 13 as Standalone, which now includes Russia.

Defining the MSCI Select Emerging and Frontier Markets Access Index

MSCI describes the purpose of this Index as:

The MSCI Frontier and Emerging Markets Select Index aims to reflect the performance of Frontier Markets (FM) and the lower size spectrum of Emerging Markets (EM), while putting stronger emphasis on the tradability & investability of the constituents compared to its Parent Index.

Source: Index Methodology PDF

The Index aims to represent the performance of 200 securities from select countries within the MSCI Emerging and Frontier Markets Index, specifically 150 securities from Emerging Markets and 50 securities from Frontier Markets.

Inclusion/construction rules include:

  • A minimum liquidity level is required for securities to be included in the Index.
  • Only stocks exhibiting sufficient foreign room are eligible for inclusion.
  • A higher minimum free float-adjusted market capitalization requirement is applied compared to the Parent Index.
  • A minimum length of trading requirement for both FM and EM securities.
  • The eligibility of new Frontier and Emerging Markets for the Index is subject to an annual review.

After the above are applied adjustments are made to achieve the following:

  • A desired mix between FM and EM securities in terms of both index weight and number of constituents. The 2021 PDF says 80/20% mix for FM/EM weights. A recent Index PDF lists the splits now being 75/25%.
  • A cap on both FM and EM countries to avoid concentration.
  • A cap to avoid Group Entity concentration.

From the above Frontier and Emerging Market countries, the Index used by the FM ETF currently limits its exposure to the following countries:

While reviewing MSCI announcements, I did not find that these lists were altered in the 2021 review.

What the FM ETF is All About

Seeking Alpha describes this ETF as:

The fund is managed by BlackRock Fund Advisors. It invests in public equity markets of global emerging region. It invests in stocks of companies operating across diversified sectors. The fund invests in growth and value stocks of companies across diversified market capitalization. It seeks to track the performance of the MSCI Frontier and Emerging Markets Select Index. While FM started in 2012, the Index changed in 2021.

Source: FM

The FM ETF has amassed $590m in assets and yields 1.27%. The managers charge 79bps in fees. To some degree, this reflects the higher cost of trading in these countries. The holdings report shows a limited number of foreign currency contracts but no specific language around currency hedging. Some countries limit that ability and could impose restrictions on the movement of currency in/out of the country. Of course, this adds risks not seen in most international ETFs.

FM holdings review

iShares provides some basic data about the FM portfolio:

iShares MSCI Frontier and Select EM ETF FM

Compared to US stocks, the P/E ratio is very attractive. In today's turbulent market, a .75 Beta should provide lower volatility.

I added the GDP forecasted growth rates to 2026 for all the countries currently held. The Top 5 comprise 56% of the assets, the Top 10 countries, 82%.

The + The; compiled by Author

The current GDP forecasted growth to 2026, weighted by country, is 4.95%. This is one positive this ETF provides investors as that is much higher than the Developed world and most likely the Emerging world, less China. Once you get into Frontier and smaller Emerging Market companies, the strength of the home country takes on more importance.

iShares MSCI Frontier and Select EM ETF; compiled by Author

That home market importance shows in the sector weights, with banks making up most of the Financials allocation. Materials, about evenly split between metals and fossil fuels extraction, is one sector where export markets take on significant importance.

Top holdings

Emerging Markets; compiled by Author

As expected, Financials and Materials dominated the Top 20 holdings. The Top 10 are 29% of the assets; the Top 20, 44%. Currently, FM holds 169 stocks, 1 Forward, 15 FX, and 19 Cash/Derivative positions. The market-cap allocations is: 46% LC, 36% MC, 15% SC, and 2% Micro. Regional exposure is: 48% Asia, 24% Africa, 9% Middle East, 7% Europe, and 2% US (currency contracts).

Distribution review


Yield is not a feature of this ETF, nor does the future portend any improvement. Seeking Alpha gives FM a "D-" overall score.

FM ticker DVD scorecard

Portfolio Strategy

One question all investors ask after studying an investment and its strategy is simply: "Did it deliver the desired return?" Documents

MSCI back-tested the new Index, which is all data prior to 12/20. If an accurate representation, the new Index is better than either the current EM or FM Indices. That said, let's compare FM against a few other International ETFs.

Data by YCharts

These four iShares ETFs represent the main parts of the International market. Besides the FM ETF, they are: iShares MSCI Emerging Markets ETF (EEM); iShares Core MSCI International Developed Markets ETF (IDEV); iShares MSCI ACWI ex U.S. ETF (ACWX), which combines EEM and IDEV. While it trails IDEV, FM did produce better returns than the EM or Total INTL ETFs since about 2017.

For investors wanting some Frontier Market exposure but maybe with a different set of ETFs, there are some options. The next chart shows FM against the Global X MSCI Next Emerging & Frontier ETF (EMFM), which, while following the same Index, has only a 17% weight overlap with FM. I started their comparison from the date the current Index was formed.

Data by YCharts

The second option is buying ETFs that focus on a single Frontier country or region. Examples include:

  • VanEck Vectors Vietnam ETF (VNM)
  • iShares MSCI Philippines ETF (EPHE)
  • Global X MSCI Pakistan ETF (PAK)
  • VanEck Vectors Egypt Index ETF (EGPT)
  • VanEck Vectors Africa Index ETF (AFK)

Except for the Africa one, they represent some of the frontier countries with the best-projected growth rates until 2026. This chart their recent history.

Data by YCharts

Since 2014, the FM ETF was the top performer but most of that history was under a different index. Also note, FM outperformed EMFM over this longer time horizon. Vietnam was the only single-country ETF with positive CAGR and probably drove the high CAGR FM has achieved as VNM is its largest current weighting.

Final Thought

Investing almost anywhere outside the United States adds some level of currency risk, even for funds that hedge, as no hedge is perfect and that strategy adds costs. While Russia is a special case, what happened to the Ruble (down 50% in a week), has happened for other reasons before. The 1997-98 Asian financial crisis began after Thailand unpegged Thai baht from the U.S. dollar, setting off a series of currency devaluations. In the first six months, several East Asia currencies drop between 45-80%.

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This article was written by

Retired Investor profile picture
Build sustainable portfolio income with premium dividend yields up to 10%.

I have both a BS and MBA in Finance. I have been individual investor since the early 1980s and have a seven-figure portfolio.  I was a data analyst for a pension manager for thirty years until I retired July of 2019. My initial articles related to my experience in prepping for and being in retirement. Now I will comment on our holdings in our various accounts. Most holdings are in CEFs, ETFs, some BDCs and a few REITs. I write Put options for income generation. Contributing author for Hoya Capital Income Builder

Disclosure: I/we have a beneficial long position in the shares of FM, AFK either through stock ownership, options, or other derivatives. 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.

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