Rapid Growth of Skurriler Index Yields 33% Return, Making Investment Decisions Challenging
The world of investing is constantly evolving, and one area that has been gaining attention is frontier markets. Over the past three years, three funds have outperformed both the S&P and MSCI indices, with returns ranging from 51 to 73 percent [1]. However, none of the offered funds in the segment have managed to beat the MSCI Frontier Markets Index since the beginning of the year [2].
Frontier markets, currently valued at nine times their earnings, offer relatively high dividends. The dividend yield of the MSCI Frontier Markets Index is around six percent [4]. Many frontier market countries have gone through difficult adjustment phases, often supported by the International Monetary Fund (IMF) [5].
Investing in frontier markets directly can be challenging, as there are no widely available ETFs specifically designed to track the MSCI Frontier Markets Small Cap Index for small investors [1]. However, there are ETFs that focus on emerging markets and international small-cap investments, which might offer some exposure to frontier-like conditions, albeit indirectly [2].
For example, the iShares MSCI Emerging Markets Sm-Cp ETF (EEMS) tracks the MSCI Emerging Markets Small Cap Index, which includes small-cap stocks from emerging markets [3]. Investors might also consider regional or sector-specific ETFs that include companies operating in frontier markets, though these would not offer direct exposure to the MSCI Frontier Markets Small Cap Index.
One ETF that does offer direct exposure to a selection of frontier market companies is the xtrackers ETF, which tracks the S&P Frontier Select Index [6]. While this index has a return that is around a third less than the MSCI Frontier Markets Index, it might still be an option for those interested in frontier markets [6].
The MSCI Frontier Markets Index has seen significant growth this year, with a 34% increase since the beginning of the year and a 16% increase in the last month [7]. James Johnstone, from Redwheel, believes that frontier markets will continue to lead in the medium term due to their significant natural resources, increasing role in global production, and favorable demographic trends [8].
However, it's important to note that past performance is not indicative of future results, and the ranking of funds can completely reverse [9]. The performance of managed funds in euros is generally significantly lower due to the recent significant increase in the value of the euro, causing a portion of the gains in other currencies to evaporate [10].
Replicating the MSCI Frontier Markets Index independently is only possible for professional investors, as there is no ETF for the second largest component, the Moroccan stock market, and many other components [11]. This leaves small investors unable to participate in the market's boom.
As the frontier markets continue to grow and evolve, it's likely that more investment options will become available for small investors. For now, those interested in this area may need to look into other investment vehicles or wait for new ETF options that specifically target frontier markets.
Sources:
- MSCI Frontier Markets Small Cap Index
- Investing in Frontier Markets: An Overview
- iShares MSCI Emerging Markets Sm-Cp ETF
- Frontier Markets Overview
- Frontier Markets: An Emerging Opportunity
- xtrackers ETF
- MSCI Frontier Markets Index Performance
- Frontier Markets: The Next Investment Frontier?
- Investing in Frontier Markets: Risks and Rewards
- The Impact of Currency Fluctuations on Investments
- Investing in Frontier Markets: A Guide
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