{"id":91411,"date":"2024-07-06T01:03:43","date_gmt":"2024-07-06T05:03:43","guid":{"rendered":"https:\/\/ifintechworld.com\/?p=91411"},"modified":"2024-07-06T01:03:46","modified_gmt":"2024-07-06T05:03:46","slug":"fm-frontier-markets-etf-a-risk-on-tool-nysearcafm","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=91411","title":{"rendered":"FM: Frontier Markets ETF, A Risk-On Tool (NYSEARCA:FM)"},"content":{"rendered":"
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Thesis<\/h2>\n

The iShares Frontier and Select EM ETF (NYSEARCA:FM<\/span>) is an equities exchange traded fund. While most investors are familiar with emerging markets and the risk\/reward implications, few understand the definition of frontier markets and the analytics behind them.<\/span><\/p>\n

In this article we are going to have a closer look at FM, the fund’s composition and historic performance, as well as its analytics and forward in the current macro environment.<\/p>\n

What are frontier markets exactly?<\/h3>\n

First let us go to finance nomenclature to establish the base here – the U.S. market is called a developed market due to its size, liquidity and volume. Most capital markets in Europe also fall in the developed market bucket. The next step down from developed markets is represented by emerging markets, which exhibit less depth, liquidity and volume when compared to developed markets. Furthermore political risk is a well known variable in the emerging market space. Further up the risk spectrum one can find frontier markets:<\/span><\/p>\n

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Frontier markets are less advanced capital markets in the developing world. A frontier market is a country that is more established than the least developed countries (LDCs) but still less established than the emerging markets because it is too small, carries too much inherent risk, or is too illiquid to be considered an emerging market. Frontier markets are also known as pre-emerging markets.<\/em><\/p>\n<\/blockquote>\n

The best way to think about frontier markets (‘FMs’) is as the next step down from emerging markets. By their definition, FMs have low liquidity, carry higher risks than EM capital markets and can be very concentrated in a few names. Therefore FMs are inherently higher risk.<\/p>\n

FM ETF composition<\/h3>\n

Let us look first at the geographic allocation for the FM fund:<\/p>\n

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Countries (Fund Website)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Vietnam is the largest exposure here with a 28% weighting, followed by Kazakhstan and Romania. Many readers might be more familiar with these countries from pop culture implications rather than capital markets research. Kazakhstan for example was popularized by the widely quoted movie Borat, where the lead character hails from said country.<\/p>\n

When having a closer look at the Kazakhstan equity market one can extract the following analytics found in the Astana International Exchange presentation:<\/p>\n