Blog

iShares’ Frontier ETF A Potential Blockbuster

September 14, 2012
Share:

If you ask me, iShares’ new frontier ETF has the makings of a blockbuster.

 

On Thursday, iShares launched its highly anticipated MSCI Frontier 100 Index Fund (NYSEArca: FM), and I think this fund will be a game-changer in the frontier markets investing landscape.

The cap-weighted fund holds 100 of the largest companies from frontier markets, as classified by indexing giant MSCI.

Frontier markets are increasingly sought by investors for a number of reasons. For one, frontier markets are still underdeveloped compared to emerging markets, meaning there’s potential for high growth in an ever-interconnected global economy.

Some frontier markets, such as Nigeria and Kazakhstan, are rich in natural resources, and are riding the current commodities boom. Others—such as Vietnam, Bangladesh and Pakistan—have favorable demographics.

Then there’s the correlation factor, which appeals to investors seeking diversification.

Since many frontier markets are still relatively untapped by investors—mainly due to accessibility and liquidity issues related to the fact that they are nascent financial markets, their returns are less correlated with the broad equity markets.

Just look how much correlations have spiked in the past 10 years between the S&P 500 Index and the MSCI Emerging Markets Index, the underlying index of the other blockbuster, iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM).

S&P 500 vs. MSCI EM

S&P 500 vs. MSCI EM and MSCI FM 100

Source: Bloomberg

 

From 2002-2003, the MSCI EM had a correlation of 0.57 with the S&P 500. Over the past year, its correlation has spiked to 0.838. Meanwhile, over the past year, the MSCI Frontier 100 Index had a correlation of 0.649 with the S&P 500.

 

ETF.COM CHANNELS

Learn why commodity ETFs are an essential part of a diversified portfolio with our Commodity ETFs channel.

Learn why bond ETFs are an essential part of a diversified portfolio with our bond ETF channel.

ETF DAILY DATA

The ETF tracking the Dow Jones industrial average was the inflows leader on Thursday, Feb. 4.

ETF issuers saw little movement in their asset totals on Thursday, Feb. 4.

ETF.COM ANALYST BLOGS

By Matt Hougan

Here's why you should attend the largest ETF conference in the world next month.

By Dave Nadig

Barclays built in a premium to this exchange-traded note, so back away.

By Sumit Roy

Why this probably isn't the start of a bear market.

By Dave Nadig

Many challenges ahead for the rapidly growing industry.

ETF INDUSTRY PERSPECTIVE

By Heidi Richardson

Opportunities in Germany and the eurozone.

By Shirish Malekar

How to protect your portfolio with liquid alts.