Frontier Markets: Potential Emerging Markets for ETFs - dummies

Frontier Markets: Potential Emerging Markets for ETFs

By Russell Wild

Of late, a number of ETFs, including the PowerShares MENA Frontier Countries Portfolio (PMNA), the Guggenheim Frontier Markets ETF (FRN), and the Market Vectors Gulf States ETF (MES), have cropped up to allow you to invest in so-called frontier markets. These markets feature economies even smaller, stock markets even newer and potentially less regulated, and governments perhaps even shakier than in emerging market nations.

Do you really want to invest in Bangladesh, Oman, Kuwait, Sri Lanka, and Trinidad and Tobago? Well, maybe . . . the payoff could be big. And the lack of correlation to other markets could be quite sweet.

But before you invest, realize how volatile these holdings are. Please do not invest too much, and diversify. The PMNA and FRN options are probably your best bets for now, but it is likely that other frontier market ETFs will appear on the market soon.

If you do want to throw a few dollars into a frontier market ETF (stand advised that they tend to be costly), go for it. You may want to use money that you otherwise would have allocated to emerging market stocks. But frontier markets are not a necessary part of a diversified portfolio.