iShares’ Frontier Switcheroo

April 16, 2012

iShares recently changed course with its expected frontier markets ETF, and I like it.

In December, iShares filed for its first global frontier markets ETF—sort of. I was originally excited about the news, hoping for a frontier version of its blockbuster iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM).

But, as I blogged after the initial filing, it turned out the fund was planning to track an emerging-frontier hybrid index that included smaller emerging markets such as Colombia, Peru and the Philippines, as well as frontier markets, ex-Vietnam and Nigeria.

Now, just a few months later, iShares pulled a switcheroo with its filing, and will be launching a “pure” frontier markets fund after all.

The new fund will track the new MSCI Frontier Markets 100 Index, which consists of the 100 largest and most liquid companies from the broader MSCI Frontier Markets Index.

I’ve long been an advocate for the need of a global “pure” frontier markets ETF.

I’ve written before about the shortcomings of the Guggenheim Frontier Markets ETF (NYSEArca: FRN), which has over 70 percent of the fund weighted in Chile, Colombia, Egypt and Peru. Major index providers like MSCI, FTSE and S&P have all these countries classified as emerging, not frontier.

The only other filing for a “pure” global frontier markets fund is the Global X FTSE Frontier Markets ETF, which is planning to track the FTSE Frontier Markets Index.

Now the question remains, Who will launch first?

I wouldn’t put it past iShares to win this race. The ETF giant has really made a push into the niche fund space in recent months, with funds being rolled out as if they’re being mass-produced on an assembly line.

Of the 91 ETP launches we’ve seen so far in 2012, 39 have been from iShares, including many with catchy ETF ticker symbols.

It looks like iShares is looking to really dominate the industry in every space that it can. And there’s tremendous potential and investor interest in the frontier markets space.

So what will the new fund’s composition look like?

As provided by MSCI, as of April 9, 2012, here is the country breakdown for the MSCI Frontier Markets 100 Index.

Country

Weighting

Kuwait

31.83%

Qatar

15.92%

UAE

11.71%

Argentina

5.76%

Pakistan

4.89%

Nigeria

4.84%

Kazakhstan

4.65%

Bangladesh

4.01%

Oman

3.43%

Croatia

2.38%

Vietnam

2.17%

Kenya

1.74%

Sri Lanka

1.69%

Romania

1.27%

Jordan

1.03%

Mauritius

0.84%

Lebanon

0.82%

Estonia

0.36%

Lithuania

0.27%

Serbia

0.20%

Ukraine

0.17%

Source: MSCI

As you can see, Kuwait, Qatar and UAE carry large weightings in the index, almost 60 percent combined.

 

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