Frontier Markets ETFs and Mutual Funds
Mutual funds and ETF opportunities for the frontier markets are still very limited, at least in the United States. But there are many companies overseas that have created mutual funds and ETFs for their local markets. See Frontier News for some of these stories. However, right now there are a few options in the US, and several more are soon to be released. Some of the existing options include :
Frontier Mutual Funds
- T. Rowe Price Africa & Middle East (TRAMX)
- Ave. Market Cap: $4.5 billion
- Expense Ratio: 1.75 Initial Investment: $2,500 ($1,000 for IRAs)
- Fund Assets: $128 million
- 3/31/2008 YTD Return*: -0.62%
- Eaton Vance Tax-Managed Emerging Markets (EITEX)
- Average Market Cap: $1.4 billion Expense
- Expense Ratio: .95
- Initial Investment: $50,000
- 3/31/2008 YTD Return*: -7.93%
- Driehaus Emerging Markets Growth (DREGX)
- Expense Ratio: 1.78%
- Fund Assets: $738 million
- 3/31/2008 YTD Return*: -12.64
- Driehaus International Discovery Fund (DRIDX)
- Expense Ratio: 1.68%
- Fund Assets: $798 million
- 3/31/2008 YTD Return*: -10.66
- The Advance Frontier Markets Fund (UK:AFMF:).
- This fund is traded on the UK stock markets
- Templeton Frontier Markets Fund
Frontier Market ETFs
- SPDR S&P Emerging Middle East & Africa ETF (GAF)
- PE Ratio: 13.31
- Fund Assets: $164 million
- 3/31/2008 YTD Return*: -10.73%
Other Frontier Market Exchange Traded Funds that have just been released
Another soon to be available Frontier Market Fund option is from Fidelity. Fidelity has just launched an Emerging Asia fund and it will be run by veteran Terra Chanpongsang. The Fund aims to invest in new upcoming frontier markets and larger developing Asian economies.
Fidelity International has just launched an Emerging Asia fund, which will target frontier stock markets as well as larger developing Asian economies.
The China/Hong Kong based fund manager Teera Chanpongsang will invest the majority of the portfolio in China, India and association of southeast Asian nations and countries, but excluding Singapore.
However he also has the capacity to invest up to 33 percent of the portfolio in the frontier stock markets of Bangladesh, Vietnam, Pakistan, Sri Lanka, and many others, to name but a few.
Mr Chanpongsang, of Fidelityís 100-strong Asian team, can invest in these frontier markets directly through local exchanges or he can invest in companies listed on the regionís more-established markets, such as Malaysia.
Fidelity said Vietnam is one of the fastest-growing economies in Asia over the past 10 years and Vietnamís long-term rate of growth is likely to be sustainable long term, partly because of strong inflow of foreign direct investment after joining the WTO, and partly because of the young and expanding population, which will drive domestic consumption growth in that country."
Fidelity said that direct exposure to Vietnamese companies through the local exchange was not attractive as valuations had been too high. Instead, they preferred to invest in companies based elsewhere in the region, but with economic exposure to the region.
However, the manager said he was happy to invest directly in Pakistan, which has a greater choice of companies listed. One Pakistani holding in the fund is MCB Bank, which has exposure to the fast-growing economy and benefits from an under-penetrated banking sector.
The Luxembourg-domiciled Ucits III-compliant fund will typically hold 80-120 stocks from a universe of almost 1000 stocks. The fundís benchmark is the Custom MSCI Emerging Asia Composite index.
Also, Investec Asset Management has Launched a Middle East Fund that will have a Frontier Market focus
Investec Asset Management this week launched its Africa Middle East Fund It will build on asset managers' established frontier market capability in Africa and target an international client base. Unfortunately this is fund is not yet available as an ETF.
According to a statement released by Investec Botswana division, the fund is open-ended and daily traded, and will invest across the entire African continent, including the Middle East and Gulf countries.
The funds investment will span over 25 countries, includes a population of over a billion people and a market capitalization of $1.5 trillion. Investec says a team comprising Amr Seif, who was formerly a Portfolio Manager for EMEA Funds at JP Morgan and Roelof Horne, and Portfolio Manager of the successful Africa and Pan-Africa Funds, will manage the Africa Middle East Fund.
Yet another Frontier Market investment. Barclays Global Investors Launches Frontier Markets Fund for Institutional Investors
Barclays Global Investors, which is one of the world's largest asset managers, announced the launch of the BGI Frontier Markets Fund. It provides exposure to certain pre-emerging market economies, also known as frontier countries. The new Fund - which will be invested in 15-16 frontier markets and will be benchmarked to the recently introduced MSCI Frontier Markets Index offers institutional investors the opportunity to participate in an asset category that is increasingly capturing the attention of investors globally. I tell you, I canít wait for an ETF from MSCI or Barclays. The Barclayís Fund is a bank maintained collective investment fund maintained by Barclays Global Investors, which is available only to certain qualified employee benefit plans and governmental plans and not offered to the general public.
Barclays said The BGI Frontier Markets Fund would serve as a strong complement to institutional investors' allocations to traditional emerging and frontier markets and that their research suggests that sophisticated investors want to participate in these growing international markets. The new strategy will offer exposure to these markets in a highly risk controlled and disciplined approach. It represents a natural expansion to their international index products.
The Fund is now based on the market-cap weighted MSCI Frontier Markets Index. The Index's investable universe currently includes all stocks from 19 pre-emerging countries from across the globe, including seven from the Eastern and Central European region, two from Asia, six from the Middle East, and four from Africa.
Countries will be screened according to three basic sets of criteria:
- An investability screen looks to eliminate markets with undue restrictions on foreign investment, local currency restrictions or limited liquidity.
- An operational screen looks for rigorous custody, safekeeping and efficient settlement.
- A qualitative screen analyzes markets for elevated capital risk, considering country risk measures such as political, economic and country risk, and eliminates markets with capital gains rates above 25%.
At its inception, the Fund will be invested in about 16 of the 19 countries included in the Index: United Arab Emirates, Kuwait, Qatar, Oman, Bahrain, Kazakhstan, Ukraine, Croatia, Slovenia, Romania, Bulgaria, Estonia, Tunisia, Mauritius, Viet Nam and Sri Lanka. BGI employs a sampling and modified market capitalization weighted approach within the Fund, balancing the desire for broad exposure, reasonable concentrations, and liquidity constraints.
The appeal to investing in the largely untapped frontier markets held by the Fund includes the possibility of reducing overall portfolio risk, according to Schioldager. BGI research suggests, over the past seven years, these markets have demonstrated correlationís below 0.3% to the U.S. market. In addition, while these markets currently account for 4% of global GDP, its five-year average GDP growth from 2001 to 2005 has outpaced other major markets at near 5.5% compared to 4.25% for traditional emerging markets and 2.75% for the U.S., according to data from the IMF and Worldbank (June 2007).
Barclays said What is so compelling about investing in frontier stock markets is the fact that it provides superior diversification in a portfolio and that this strategy is a natural extension of the growth of international and emerging markets diversification that sophisticated investors have been pursuing since the 1970s."