BlackRock’s iShares unveils ‘frontier markets’ ETF

Sep 14th, 2012 | By | Category: Equities

BlackRock has announced the launch of the iShares MSCI Frontier 100 Index ETF (FM), the first exchange-traded fund (ETF) benchmarked to the MSCI Frontier Markets 100 Index.

BlackRock launches iShares MSCI Frontier 100 Index exchange-traded fund (ETF) (NYSE Arca: FM)

Frontier markets, such as Kuwait, the fund’s largest holding, are forecast to be among the world’s fastest growing economies.

The MSCI Frontier Markets 100 index, which was unveiled by MSCI in April this year, provides exposure to frontier market securities that are specifically screened for liquidity. The index is a subset of the broader MSCI Frontier Markets Index.

The frontier markets that are currently included in the index are Argentina, Bangladesh, Croatia, Estonia, Jordan, Kazakhstan, Kenya, Kuwait, Lebanon, Mauritius, Nigeria, Oman, Pakistan, Qatar, Romania, Serbia, Sri Lanka, Ukraine, the United Arab Emirates, and Vietnam.

“For investors who are seeking broader equity market exposures, this fund is a logical extension of investing globally,” said Daniel Gamba, Head of iShares Americas Institutional Business at BlackRock. “Frontier markets are a relatively untapped and exciting investment opportunity that more investors are starting to consider.”

Representing 30% of the global population, frontier markets are forecast to be among the world’s fastest growing economies. Driven by a growing consumer class and a rich supply of natural resources, frontier markets are moving along the same path that led global emerging markets to be one of the strongest asset classes of the last 25 years.

Gamba added: “Introducing this frontier markets ETF highlights iShares commitment to providing access to unique, growing equity markets through transparent, liquid and cost efficient products. BlackRock has been a manager of frontier markets since 2008, managing approximately $530 million benchmarked to frontier markets today. BlackRock began offering the first international ETFs for US investors in 1996. The iShares MSCI Frontier 100 ETF can provide an important diversification role in our clients’ global investment portfolios.”

Diana Tidd, Managing Director and Head of the MSCI Index Business in the Americas, said: “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 ETF. 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.”

At the stock level, the top five constituents of the MSCI Frontier Markets 100 Index are National Bank of Kuwait (8.63%), Zain/Mobile Telecommunications Co (7.29%), Kuwait Finance House (4.01%), Qatar National Bank (3.53%) and Kazmunaigas Exploration Production (3.53%). On a sector basis, the index is dominated by financials, which account for 57.19%, and telecommunications services, which contributes 15.77%; energy also has a significant weight at 9.10%.

At the geographic level, the index is heavily exposed to the Middle East, which accounts for almost two thirds of the index (64.24%). Indeed, of the top five country weights, three are from this region: Kuwait (30.81%), Qatar (15.83%) and the United Arab Emirates (11.90%). Nigeria is the fourth largest country constituent with 10.57%, while Pakistan is in the fifth spot with 4.84%. In total, 20 countries are represented.

The fund is listed on the NYSE Arca (ticker: FM) and has an annual expense ratio of 0.79%.

In the US market, the fund will compete against the Guggenheim Frontier Markets ETF (FRN), which tracks the BNY Mellon New Frontier DR Index, and, potentially, the slightly more specialist PowerShares MENA Frontier Countries Portfolio ETF (PMNA), which tracks the NASDAQ OMX Middle East North Africa Index. These funds have accumulated assets of $146 million and $17 million respectively.

UK and European-based investors looking for frontier markets exposure could consider the db X-trackers S&P Select Frontier ETF (XSFR), which tracks the S&P Select Frontier Index, an index comprising 40 of the largest and most liquid frontier market stocks. This fund is listed on multiple exchanges including the London Stock Exchange, Deutsche Börse (Xetra) and SIX Swiss Exchange. It has total expense ratio (TER) of 0.95% and assets of $53 million.

Alternatively, investors could consider the Deutsche Börse-listed RBS Market Access MSCI Frontier Markets Index ETF (M9SY). This fund tracks the full MSCI Frontier Markets Index (parent of the MSCI Frontier 100 Index), which consists of over 150 securities from 25 countries. The fund has a TER of 0.90% and assets of $9 million.

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