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Bring up “frontier markets” and most investors envision a potpourri of nations primarily located in Africa or the Middle East. Not so fast, my friend. A closer inspection of the growing number of frontier mutual funds and ETFs, for instance, shows that at least in regards to some of them, there is very little correlation to the aforementioned regions.
Consider the Claymore/BNY Mellon Frontier Markets ETF (NYSEArca: FRN). The fund uses an indexing approach and seeks to more or less replicate, before fees and expenses, an equity index called The Bank of New York Mellon New Frontier DR Index. What does that mean? A close inspection of the fund’s holdings shows that Poland (25.07%), Chile (23.55%) and Egypt (14.78%) account for a majority of the top country weightings, and moreover that financials account for 41.61% of the sector weighting. Per Matthew McCall, president of Penn Financial Group, LLC, a registered investment advisor:
“Diversification between three separate continents is a plus for [FRN]; however, the lack of more exposure to Africa is a concern. The only other African country in the allocation is Nigeria, with a small 3% (now 2.54) allocation. Only one of the top ten holdings is traded on a US-based stock exchange (Enersis (NYSE:ENI), an electric utility company based in Chile), which makes this ETF valuable to the average investor.”
From a micro standpoint, as of Friday, FRN’s top holdings were as follows:
| Telekomunikacja Polska SA | TPSD | 8.68 % |
| Bank Pekao SA | BPKD | 8.37 % |
| Empresa Nacional de Elect | EOC | 7.13 % |
| Enersis SA | ENI | 6.54 % |
| Compania de Minas Buenaventura | BVN | 5.25 % |
| Polski Koncern Naftowy Or | POKD | 5.02 % |
JGW
Frontier Markets 