What goes up can also go down, however. In contrast, investors in the Pakistan ETF had a dismal last 12 months, as the Global X MSCI Pakistan ETF (PAK) plummeted 26.1%, compared with a 13.3% rise for SPY, 4.5% for EEM and 9.6% for ACWI.
Performance fluctuations in frontier markets can be brutal in the short term, even if their long-term trend is positive. That makes the asset class most suitable for investors "with a long time horizon who can withstand fluctuations," said Tolle.
"It helps to use a selection strategy in which you have high conviction, because you’ll need to draw on that conviction in tough times," she added. "You need a truly long-term perspective."
Short-term volatility is one reason Steve Cucchiaro, president and chief investment officer of 3Edge Asset Management, prefers indexed instruments for frontier market investing.
"Individual frontier markets can be relatively thinly traded and highly volatile," he said. "For general investors, it's a lot less risky to invest in a basket of several frontier markets."
Currently there are two broad index frontier market ETFs: FM, which has $561 million in assets, and the $66 million Invesco Frontier Markets ETF (FRN). A third ETF, the $19 million WisdomTree Middle East Dividend Fund (GULF), tracks petro states in the Middle East.
Additionally, there are three emerging/frontier market blend ETFs: the $63 million Columbia Beyond BRICs ETF (BBRC), the $16 million Global X Next Emerging & Frontier ETF (EMFM) and the $68 million VanEck Vectors Africa Index (AFK).
These ETFs, plus the five single-country frontier market ETFs, are listed in the table above.
FM & FRN: Not Interchangeable
One might expect FM and FRN to behave very similarly, given that they're both broad market funds in a niche segment. However, these two funds' exposures and track records are very different.
FM is pretty much what you'd expect out of vanilla frontier market exposure. It tracks a market-cap-weighted index of the 100 largest stocks from 20 frontier markets, as classified by MSCI.
FRN, meanwhile, tracks cap-weighted frontier market index depositary receipts and locally domiciled securities. As of 2015, its index uses a slightly different definition of what constitutes a frontier market than it did before. The difference shows up in FRN's track record, which diverges significantly from FM's over the longer term.
Year-to-date, FRN has outperformed FM, though both have notched negative returns. Over a one-year period, however, FM outshines, rising 4.3% versus FRN's 3.6%.
That performance gap widens over longer intervals; on a five-year basis, FM increases 4.1% compared with FRN's 0.3%.