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The frontier markets seized a considerable position in the global investment arena owing to low interest rates in the developed world, rising commodity prices and ongoing expectations of improving growth in developing economies. However, with Trump set to enter the White House as 45th President of the United States, these securities were in for a tailspin (read: 7 Inverse/Leveraged ETFs to Buy as Markets Make Way for Trump).
A popular frontier market ETF iShares MSCI Frontier 100 ETF (FM - Free Report) lost about 3.6% in the one month time frame compared to a loss of 1.6% for the most popular Vanguard FTSE Emerging Markets ETF (VWO - Free Report) and 1.2% for iShares MSCI Emerging Markets ETF (EEM - Free Report) .
As per MSCI Inc, MSCI Frontier Markets Index was down 2.4% in the year-to-date period as of December 16. If the index remains at a similar level for the rest of December, it will be the first instance of back-to-back yearly loss since its launch in 2002 (read: Emerging Market ETFs Dip after Trump Win, Time to Buy?).
Frontier markets are suffering on fear of implementation of Trump’s anti-trade protectionist policies, political turmoil and growth concerns. The surge in U.S. dollar on the President-elect’s promise to introduce a burst of stimulus by increasing infrastructure spending package, easing regulations and tax cuts with an aim to accelerate economic growth and create more jobs in the country aren’t helping frontier market’s investment case either.
In fact’s Fed’s second interest rate hike in a decade earlier this month and its hawkish stance for next year hampers the appeal of frontier markets. Additionally, frontier markets are risky investments due to the lack of liquidity and large currency fluctuations and financial reporting concerns among others (read: How to Profit from Rising Rates with ETFs).
Despite the tough environment, frontier markets could stage a comeback with several countries such as Vietnam, Egypt and Pakistan expected to outperform. Frontier market assets are expected to recapture investor attention once there is more visibility on Trump’s policies and U.S. rates. Thus, risk-tolerant investors could look at the following ETFs (see: all Broad Emerging Market ETFs here).
FM tracks the MSCI Frontier Markets 100 Index and has an AUM of $498.7 million. The fund trades in moderate average volume of 141,000 shares. The fund has a basket of 97 securities. In terms of country exposure, Kuwait (21.5%), Argentina (15.1%) and Pakistan (11.8%) dominate the fund. Financials dominate in terms of sector exposure, accounting for almost half of the total assets, while telecom (14.1%) and energy (9.9%) round out the top three.
The fund charges an expense ratio of 79 basis points and has an yield of 2.17% currently. It has a Zacks ETF Rank #3 or ‘Hold’ rating with a Low risk outlook
Guggenheim Frontier Markets ETF
FRN seeks to match the performance of the BNY Mellon New Frontier DR Index. BNY Mellon defines frontier market countries based on the GDP growth, per capita income growth, inflation rate, privatization of infrastructure and social inequalities. The fund has a basket of 71 securities.
The top countries included in the ETF—Argentina (14.5%), Kuwait (14.3%), Vietnam (10.2%) and Pakistan (9.8%)-- account for about half of the holdings. From sector point of view, Financials dominates the fund with 47.8% exposure. The fund has total assets of $39.2 million and expense ratio of 70 basis points. It pays out 4.11% yield at present. The fund trades in a paltry volume of 12,000 shares on an average. Like FM, FRN has a Zacks ETF Rank #3 with a Low risk outlook (read: Pakistan ETF in Focus on Growing Prospects)
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Frontier Market ETFs: More Pain in 2017?
The frontier markets seized a considerable position in the global investment arena owing to low interest rates in the developed world, rising commodity prices and ongoing expectations of improving growth in developing economies. However, with Trump set to enter the White House as 45th President of the United States, these securities were in for a tailspin (read: 7 Inverse/Leveraged ETFs to Buy as Markets Make Way for Trump).
A popular frontier market ETF iShares MSCI Frontier 100 ETF (FM - Free Report) lost about 3.6% in the one month time frame compared to a loss of 1.6% for the most popular Vanguard FTSE Emerging Markets ETF (VWO - Free Report) and 1.2% for iShares MSCI Emerging Markets ETF (EEM - Free Report) .
As per MSCI Inc, MSCI Frontier Markets Index was down 2.4% in the year-to-date period as of December 16. If the index remains at a similar level for the rest of December, it will be the first instance of back-to-back yearly loss since its launch in 2002 (read: Emerging Market ETFs Dip after Trump Win, Time to Buy?).
Frontier markets are suffering on fear of implementation of Trump’s anti-trade protectionist policies, political turmoil and growth concerns. The surge in U.S. dollar on the President-elect’s promise to introduce a burst of stimulus by increasing infrastructure spending package, easing regulations and tax cuts with an aim to accelerate economic growth and create more jobs in the country aren’t helping frontier market’s investment case either.
In fact’s Fed’s second interest rate hike in a decade earlier this month and its hawkish stance for next year hampers the appeal of frontier markets. Additionally, frontier markets are risky investments due to the lack of liquidity and large currency fluctuations and financial reporting concerns among others (read: How to Profit from Rising Rates with ETFs).
Despite the tough environment, frontier markets could stage a comeback with several countries such as Vietnam, Egypt and Pakistan expected to outperform. Frontier market assets are expected to recapture investor attention once there is more visibility on Trump’s policies and U.S. rates. Thus, risk-tolerant investors could look at the following ETFs (see: all Broad Emerging Market ETFs here).
(FM - Free Report)
FM tracks the MSCI Frontier Markets 100 Index and has an AUM of $498.7 million. The fund trades in moderate average volume of 141,000 shares. The fund has a basket of 97 securities. In terms of country exposure, Kuwait (21.5%), Argentina (15.1%) and Pakistan (11.8%) dominate the fund. Financials dominate in terms of sector exposure, accounting for almost half of the total assets, while telecom (14.1%) and energy (9.9%) round out the top three.
The fund charges an expense ratio of 79 basis points and has an yield of 2.17% currently. It has a Zacks ETF Rank #3 or ‘Hold’ rating with a Low risk outlook
Guggenheim Frontier Markets ETF
FRN seeks to match the performance of the BNY Mellon New Frontier DR Index. BNY Mellon defines frontier market countries based on the GDP growth, per capita income growth, inflation rate, privatization of infrastructure and social inequalities. The fund has a basket of 71 securities.
The top countries included in the ETF—Argentina (14.5%), Kuwait (14.3%), Vietnam (10.2%) and Pakistan (9.8%)-- account for about half of the holdings. From sector point of view, Financials dominates the fund with 47.8% exposure. The fund has total assets of $39.2 million and expense ratio of 70 basis points. It pays out 4.11% yield at present. The fund trades in a paltry volume of 12,000 shares on an average. Like FM, FRN has a Zacks ETF Rank #3 with a Low risk outlook (read: Pakistan ETF in Focus on Growing Prospects)
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>