Frontier Market ETFs: Better International Investments?

Zacks

As many emerging markets have seen weakness in 2014, some investors have been looking for other ways to diversify their exposure across geographic lines. One increasingly in-focus way to do this is by looking at frontier markets.

What are Frontier Markets?

Frontier markets are basically a step below emerging markets, thanks to a number of factors. These can include currency issues, a lack of liquidity, financial reporting concerns, or substandard development, just to name a few (see Time for Frontier Market ETFs?).

Overall, it means that they can be quite volatile, though they can provide investors with big returns, assuming investors are willing to tolerate high levels of risks.  Plus, since these are trading at favorable valuations and they have proven to be less impacted by the taper, frontier markets could be solid choices for the current market environment as well.

Frontier Market ETFs

Investors have a few choices in the space, including some targeted picks that focus on specific regions or nations. These include funds that have a Middle East focus, such as the Market Vectors Gulf States Index ETF (MES) and the WisdomTree Middle East Dividend Fund (GULF), as well as the Market Vectors Vietnam ETF (VNM) for those looking for single country exposure.

The Middle East-focused ETFs could be interesting thanks to some recent upgrades and stable currencies in the region. In fact, many currencies here are pegged against the dollar, limiting currency depreciation worries (See the Key to International ETF Investing).

Meanwhile for Vietnam, this nation has seen a stronger economy due to market oriented reform policies, as well as stronger demand from developed nations. The country is also a huge beneficiary of some manufacturing leaving China, suggesting it is well positioned for gains this year.

More Information

For investors seeking more on these ETFs and the general frontier market space, we encourage you to watch our short video on the subject below:



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Read the analyst report on MES

Read the analyst report on GULF

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