Fund Friday: iShares MSCI Frontier 100 Index Fund

As the focus of many investors shifts away from the BRICs and on to other emerging markets expect the universe of non-BRIC ETFs and mutual funds to continue expanding.  With the often mentioned newer acronyms like MIST and the continuing investigation into the next generation emerging markets, commonly referred to as “Frontier Markets”, variety will be the flavor of the times.

This past September saw a new addition to the Frontier Market category in the iShares MSCI Frontier 100 Index Fund (FM, quote).  FM “seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Frontier Markets 100 Index.”  The MSCI Frontier 100 Index, according to the MSCI website, is “designed for those facing various obstacles in replicating broader frontier markets indices, the MSCI Frontier Markets 100 Index puts a strong emphasis on tradability through three main features: 1. A minimum liquidity level is required for constituents of the index 2. Only stocks exhibiting sufficient foreign room (foreign room being defined as the proportion of shares still available to foreign investors relative to the maximum allowed) are eligible for inclusion 3. The number of constituents is limited to 100 at the time of an index review.”  

The index was announced as the underlying for the new fund in a press release from MSCI which stated “we are delighted to have licensed another of our market-leading equity indices to BlackRock for the creation of the iShares MSCI Frontier 100 Index Fund,” said Diana Tidd, Managing Director and Head of the MSCI Index Business in the Americas. “As a tradable proxy for its broader parent index, the MSCI Frontier Markets 100 Index aims to cover the largest and most liquid securities across the Frontier Markets.”

The top ten countries in the portfolio are as follows: 1. Kuwait 31.83% 2. Qatar 15.11% 3. United Arab Emirates 11.99% 4. Nigeria 11.65% 5. United States 4.97% 6. Pakistan 4.72% 7. Kazakhstan 4.15% 8. Argentina 3.25% 9. Oman 3.11% 10. Bangladesh 2.49%.  

The sector breakdown is as follows: 1. Financials 55.70% 2. Telecommunications 15.63% 3. Energy 8.87% 4. Industrials 8.78% 5. Consumer Staples 4.97% 6. Short Term Securities 4.97% 7. Materials 2.99% 8. Utilities 1.41% 9. Health Care 0.47%. 

This new ETF goes head-to-head with other Frontier Market funds.  A most obvious comparison would be the Guggenheim Frontier Markets ETF (FRN, quote).  While the ETFs have similar sounding names the funds are quite different.

FRN is concentrated in many different countries than FM.  It’s country allocation is as follows: 1. Chile 42.62 % 2. Colombia 14.40 % 3. Egypt 11.32 % 4. Peru 9.05 % 5. Argentina 7.15 % 6. Kazakhstan 5.18 % 7. Nigeria 4.36 % 8. Lebanon 9. 1.86 % 10. Oman 1.59 % 11. Ukraine 1.09 %.  

69% of FRN is in South America while FM doesn’t hold any South American countries except for Argentina at 3.25%.  

This highlights a very critical understanding for investors in ETFs and mutual funds.  You have to look inside the funds.  Many individuals would simply read the name of the fund and flip a coin, assuming they were very similar.  They are not.  

FM is still very young and illiquid but a welcome addition to this burgeoning ETF category.  Stay tuned to Emerging Money and we will keep you updated on the new, interesting and beneficial fund developments in emerging markets.