Latest news, trends and ideas for investing with exchange traded funds | ETF Commentary

Money is flowing into exchange traded funds that specialize in investing in frontier markets according to the WSJ.

In his column, The Final Frontier: Investing in Ghana, Jeff Opdyke writes that investors poured $375 million into frontier funds in the second half of 2009.   Investors are attracted to frontier markets because of faster economic growth, bigger dividends and returns that are far less correlated with other markets.

The frontier market funds highlighted in Opdyke’s piece include the Invesco PowerShares MENA Frontier Countries Portfolio (PMNA) , Van Eck Global’s Market Vectors Vietnam Index ETF (VNM), and Claymore BNY Mellon Frontier Markets ETF (FRN).

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Funds with heavy exposure to emerging markets took sudden hits and then recovered as markets reacted to news about Dubai’s debt problems according to the WSJ’s John Spence.

The iShares MSCI Emerging Markets Index Fund (EEM) lost about 4% on the Friday after Thanksgiving on the news.  ETFs with significant exposure to the UAE include Market Vectors Gulf States Index ETF (MES) , PowerShares MENA Frontier Countries Portfolio (PMNA) and WisdomTree Middle East Dividend Fund (GULF).

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More Middle East ETF choices will soon be available to investors based on Van Eck’s registration of exchange-traded funds that will provide exposure to Egypt and Kuwait.

Current ETFs providing Middle East exposure include the Van Eck Market Vectors Africa Index ETF (AFK), WisdomTree Middle East Dividend Fund (GULF) as well as the PowerShares MENA Frontier Countries Portfolio (PMNA).

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With risk appetites returning, investors are seeing opportunity in the small developing markets known as “frontier” markets.

Frontier markets are those economies that are too small, illiquid or otherwise unaccesible to be classifed as “emerging” markets.  Values can swing wildly as they did in 2007 when many frontier markets delivered double or even triple digit returns.

WSJ columnist Annelena Lobb reports in Rediscovering a Frontier Ethic of Investing, that several active fund managers are seeing increased interest as the MSCI Frontier Markets Index has climbed 51% from its March lows.

ETF investors can gain exposure to Frontier Markets through the PowerShares MENA Frontier Countries Portfolio (PMNA).  The fund invests in the largest and most liquid securities of companies domiciled in Middle Eastern and North African countries that have smaller economies or less developed capital markets than traditional emerging markets.

Another choice is the Claymore BNY Frontier Markets ETF (FRN).  This fund invests in several frontier markets including Bahrain, Chile, Columbia, Czech Republic, Egypt, Estonia, Georgia, Kazakhstan, Kuwait, Lebanon, Nigeria, Oman, Pakistan, Peru, Poland, Ukraine and United Arab Emirates.

For more, see the Investing in Frontier Markets with ETFs.

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The Financial Times is reporting that exchange traded funds are gaining traction in the Gulf.

According to the article ETF appeal begins to grow in the Gulf, the French bank SocGen launched a Kuwaiti ETF this summer and BNP Paribas recently launched ETFs that track Kuwaiti and United Arab Emirates indices.

Additional growth could come from regional exchanges who are looking to possibly add local ETFs as a way to add liquidity and depth to their markets.

For US investors interested in opportunities in the Middle East, the PowerShares MENA Frontier Countries Portfolio (PMNA) tracks an index of the largest and most liquid securities of companies domiciled in Middle Eastern and North African countries that have smaller economies or less developed capital markets than traditional emerging markets. The fund includes securities domiciled in: Egypt, Morocco, Oman, Lebanon, Jordan, Kuwait, Bahrain, Qatar and United Arab Emirates.

The Claymore BNY Mellon Frontier Markets ETF (FRN) invests in ADRs and GDRs of companies in the Frontier Market which includes Kuwait, Oman and the UAE.

WisdomTree’s Middle East Dividend Fund (GULF) tracks the performance of companies in the Middle East region that pay regular cash dividends. Companies must be eligible to be purchased by foreign investors and incorporated in and listed on a major stock exchange in Bahrain, Egypt, Jordan, Kuwait, Morocco, Oman, Qatar or the United Arab Emirates.

The Market Vectors Africa Index ETF (AFK) tracks an index of African companies that span 11 countries — from the more developed South Africa, Egypt and Morocco to the frontier markets of Nigeria, Ghana and Zambia.

For a more complete look at Gulf ETFs, see Investing in Frontier Markets with ETFs.

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