Global X Funds, the New York-based fund sponsor known for its niche strategies, today is launching two frontier-market-focused ETFs that look to put at investors’ fingertips unprecedented access to Nigeria, Mongolia and Central Asia.
The Global X Nigeria Index ETF (NGE) is the U.S. ETF market’s first exchange-traded fund to focus exclusively on the most populous country in Africa. The fund tracks a Solactive index designed by Frankfurt-based Structured Solutions AG. It comes with an annual expense ratio of 0.68 percent.
The fund serves up direct exposure to some 25 Nigerian companies in a way that has only been available until now in a more diluted way through funds like the iShares MSCI Frontier 100 Index Fund (FM), which allocates some 13.5 percent to Nigeria, or the Guggenheim Frontier Markets ETF (FRN), where Nigeria represents 4.7 percent of the portfolio.
The Global X Central Asia ' Mongolia Index ETF (AZIA) also tracks a Solactive index and invests in some 25 securities from Mongolia as well as Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. AZIA comes with an annual expense ratio of 0.69 percent.
Both Global X ETFs are what the company called “first to market,” beating New York-based Van Eck to the punch. Van Eck has two Market Vectors Nigeria-centered ETFs in registration , as well as a Mongolia ETF that looks to tap into the natural-resources-rich regions with funds that have been sitting in the regulatory pipeline since 2011.
ETFs focused on frontier markets are still relatively few, but they are often heralded for the diversification they provide given that their returns tend to be less correlated with broad markets. That virtue has come into focus in recent years as rising correlations among asset classes have increasingly made true portfolio diversification a challenge.
But from a fundamental perspective, both ETFs also represent an investment opportunity on natural-resources-rich nations that are benefiting from growing demand either domestically or from neighboring nations.
In the case of Nigeria, the country is not only oil-rich and one of the world’s major oil exporters, it also has a booming middle class and rising domestic consumption, which are fueling growth in GDP, Global X research analyst Alex Ashby told IndexUniverse.
“We’ve been looking at Nigeria for a long time and we are very excited about the country’s demographics and growth potential,” Ashby said.
Nigeria was one of the best-performing stock markets in Africa in 2012, and has continued to outperform emerging market counterparts so far in 2013.
Mongolia, meanwhile, has an array of mineral deposits including oil and precious metals, and is in full expansion mode as it benefits from growing demand coming from neighboring China.
The country’s mining industry is still in its infancy, but it should continue to boom as it looks to meet demand from China as well as other international markets, Ashby noted.
“China is the bigger driver in that region,” Ashby said of AZIA’s prospects.
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