These are hard times for emerging and frontier equity ETFs, but it’s particularly hard for some of the smaller funds.
Frontier and emerging market equity ETFs haven’t had it easy for several months now, as investors opt for U.S.-centric exposure instead at a time when the Fed’s tapering of quantitative easing threatens capital flows into these developing economies.
It has certainly been tough for ETFs tapping into those markets to attract fresh assets. Even the behemoths in the space like the $43 billion Vanguard FTSE Emerging Markets ETF (VWO | C-89) and the $36 billion iShares MSCI Emerging Markets ETF (EEM | B-100) have now each bled $10 billion in assets in the past 12 months.
But the challenges are even bigger for the smaller, less liquid funds, many of which are either too new or too niche-y to really catch on quickly with investors.
ETF.com analysts track what we call a fund’s closure risk, and right now there are at least 50 ETFs that are facing the highest risk of closure if asset flows don’t pick up soon. Among them, there are a few frontier and emerging market strategies.
Below is a list of four such strategies that we see as most likely to struggle to survive in 2014, in no particular order.
1.The Global X Central Asia & Mongolia ETF (AZIA | F-13) has only $2 million in total assets.
AZIA is a frontier market ETF, and tracks an index of companies that primarily derive their revenues from Mongolia and five other central Asian countries, including Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan.
To be fair, the fund is still young, having come to market less than a year ago, in April 2013. But while it costs 0.69 percent a year in expense ratio—a relatively competitive fee for the segment—it’s not very liquid. AZIA trades with an average spread of 115 basis points. That puts the cost of ownership of this fund just under 1.85 percent a year, or $185 per $10,000 invested.
Roughly two-thirds of the portfolio is tied to energy and basic materials stocks, and has very little focus on financials, which makes this fund more a play on frontier market commodities, according to our ETF analytics.