New Frontier Market ETFs On Horizon

November 10, 2014

Another frontier market ETF is likely coming up, and not a moment too soon.

FTSE’s launch of its new frontier markets index series in September likely spells future competition for the popular iShares MSCI Frontier 100 ETF (FM | D-67).

For now, that iShares ETF has $731 million in assets and has solidified itself as the “go-to” broad frontier markets product. Since its launch in September 2012, FM’s had net inflows of $670 million on the back of blistering total returns of 49 percent through Oct. 31, 2014.

With no ETF filings yet on these new FTSE indexes, you might be asking why this index launch is even relevant.

It’s relevant because FTSE and MSCI are the two indexing giants in the international space, and I think it’s only a matter of time before we get a FTSE frontier ETF. Interest in frontier markets will grow in the coming years, and there’s going to be much debate on the definition of “frontier markets.”

Another ETF Is Needed

MSCI and FTSE differ in their criteria for frontier classification, which I won’t get into the details of here. But because they do differ, I think there’s a real need for another broad frontier markets ETF besides iShares’ FM.

(The Guggenheim Frontier Markets ETF (FRN | D-18), an American depositary receipt/global depositary receipt-exclusive ETF also exists, but BNY Mellon is alone in classifying Chile, Colombia, Egypt and Peru—67 percent of FRN’s weighting combined—as frontier instead of emerging. So I’m going to exclude FRN from this discussion).

A new FTSE frontier ETF would not be another “me too” frontier fund, but would provide something new and different from the current MSCI-based FM.

So before you say “who cares?”, let’s look at why FTSE launched this new index series and how FTSE’s frontier index differs from MSCI’s.

 

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