iShares Launches Frontier Markets ETF
September 12, 2012
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 assets.
"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 getting.
"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.