An ETF That Takes You to the Frontier

Poland and Egypt make sense as frontier markets, but I would think of Chile as more of an emerging market. Chile is the only country choice that seems questionable to me in a "frontier" fund.

The sector makeup favors financials at 37.27%, telecom at 16.24%, materials 13.46% and energy at 11.61%. This makes perfect sense because most, if not all, countries have a big bank, a big phone company and a big energy company. The heavy weight to materials belies the natural-resource theme that has helped countries like Kazakhstan and Peru to become more economically relevant than they once were.

Most folks will not recognize the names held in the fund, but some of them are fairly large, widely held and written about, so looking under the hood will not be impossible. It will be easy to find information on larger holdings like Bank Pekao, Orascom Telecom and Kazmunaigas.

FRN has 42 holdings with an average weighted market cap of $10.9 billion (probably bigger than you thought) and the fee is capped at 0.65%.

Frontier markets are an asset class. At times, the asset class will be a good hold; at times not. As mentioned above, there will soon be other funds that come to the market, and they will be much different than FRN.

Anyone interested in the space will need to decide for themselves what the best way in will ultimately be, but this area is worth exploring, the recent events in Vietnam notwithstanding.

For one thing, frontier markets appear to have shrugged off the financial crisis and bear market. I believe this is because of the story-on-the-ground aspect of the frontier space that is a less powerful catalyst to emerging and developed markets.

That the frontier is now accessible, and that soon there will be choice, is a huge plus for investors -- but as the recent action in Vietnam and the meltdown in the GCC countries a couple of years ago show there will be periods of extreme volatility, which begs for moderate exposure.