Why iShares’ ‘FM’ Is About To Get Better

April 17, 2014

FM Country Breakdown
Current (%) Post-Transition (%) - Est
Kuwait 20.3 24.7
United Arab Emirates 18.3 0
Qatar 18.24 0
Nigeria 11.4 15.3
Argentina 5.3 7.5
Pakistan 4.4 8.4
Kenya 3.6 6.5
Morocco 3.5 6.4
Oman 3.0 8.1
Kazakhstan 2.8 5.6
Vietnam 2.1 4.5
Bangladesh 1.4 2.8

Source: iShares and MSCI

Even more interesting is the new regional exposures. Specifically, as Middle East exposure diminishes, Africa and Asia-Pacific will carry more weight.

FM Regional Breakdown
Current (%) Post-Transition (%) - Est
Middle East 56.8 34.6
Africa 22.6 30.2
Asia-Pacific 12.4 23.8
Latin America 5.4 7.5
Europe 2.0 3.9

Post-transition, I expect FM to become a more diversified, global frontier markets ETF.

Beyond its performance, I still consider the main draw of FM to be the diversification it provides in a portfolio, because frontier markets tend to be less correlated with global markets.

With regard to investor interest, I also think the frontier markets genie is now out of the bottle, and iShares likely already solidified its position in the frontier ETF landscape with FM. I only expect this to continue in the coming years.



At the time this article was written, the author held a long position in FM. Contact Dennis Hudachek at [email protected], or follow him on Twitter @Dennis_Hudachek.


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