Topic: How To Invest

Q: Pat, can you please give me your views on the iShares MSCI Frontier 100 ETF? Frontier markets are one step below emerging markets, but this fund looks interesting. Thank you.

Article Excerpt

A: Frontier markets are developing countries, but with economies considered still too small to be emerging markets. While risky, the best of frontier-market stocks can offer sound prospects for growth and good fundamental value. Many frontier countries have sizable populations with favourable demographics, including a rising middle class, as well as low penetration of basic goods and services. As well, rapid urbanization, coupled with low labour costs, are making frontier countries increasingly attractive destinations for foreign direct investment in manufacturing. Vietnam and Bangladesh are examples. What’s more, frontier market stocks generally offer substantially lower valuations, such as p/e ratios, compared to those for stocks traded on exchanges in emerging and developed markets. At the same time, though, frontier markets are among the riskiest markets in which to invest. Risks in these markets include political and social instability, and restrictions on foreign investors. Volatile currencies, lower levels of liquidity, and poorly regulated markets are also risk factors. Here is a prominent frontier market ETF that aims…