iShares, the largest purveyor of ETFs globally, rolled out
today, Sept. 13, its iShares MSCI Frontier 100 Index Fund
(NYSEArca:FM), a fund that serves up focused exposure to the least
mature and least liquid economies globally.
FM tracks an MSCI benchmark that taps into equities from 20
frontier markets, including Argentina, Bangladesh, Croatia,
Estonia, Jordan, Kazakhstan, Kenya, Kuwait, Lebanon, Mauritius,
Nigeria, Oman, Pakistan, Qatar, Romania, Serbia, Sri Lanka,
Ukraine, the United Arab Emirates and Vietnam.
The portfolio is heavily allocated to energy, financial and
telecommunication names, and is expected to have an annual expense
ratio of 0.79 percent, according to the latest prospectus the
company filed with U.S. regulators.
iShares appears to be the first ETF sponsor to create a broad
frontier markets fund since Guggenheim launched the market's first
Frontier Markets ETF (NYSEArca:FRN) in 2008. But the new iShares
also looks to be the first pure-play frontier fund, as the $142
million Guggenheim fund has heavy allocations to countries that
some index providers consider emerging rather than frontier.
The time for FM's launch seems right, as investors increase
allocation to international equities-and look for more prospective
sources of returns at a time when some of the key emerging markets
economies such as China and Brazil are slowing down, in part due to
the developed-world-led global recession.
'Frontier markets are often favored by investors looking for
diversification because their returns tend to be less correlated
with the broad markets, which can be appealing in a global market
where correlations have spiked across all asset classes in recent
years,' IndexUniverse ETF analyst Dennis Hudachek said.
iShares is hoping FM will repeat the success the firm has had
with its iShares MSCI Emerging Markets Index Fund (NYSEArca:EEM),
the market's second-largest broad emerging markets ETF, which has
$34.36 billion in assets.
Fund providers like WisdomTree, Van Eck and PowerShares have
their own respective take on regional frontier funds, but they are
still small and largely devoid of exposure to booming African
economies, such as Nigeria and Kenya.
The PowerShares MENA Frontier Countries ETF (NYSEArca:PMNA) is
perhaps one of the largest in the space, with $17 million in total
'For those investors who've been waiting for a pure, global
frontier markets ETF, FM looks to be the real deal,' Hudachek
concluded, but warned that investors need to know what they are
'Still, investors should understand the heavy exposure to Middle
East, with Kuwait, Qatar and UAE accounting for over half the
fund's weighting, and FM's heavy exposure to financials, mostly
from these three Gulf States,' he said.
iShares has other takes on the frontier space currently still in
the San Francisco-based company's pipeline, including two regional
frontier funds focused on Africa and the Middle East Gulf.
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