Stellar returns: Why you should consider frontier markets

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Nov. 20 2020, Updated 4:59 p.m. ET

3.)    Interpreting “emerging markets” to also include frontier markets. While a traditional emerging market benchmark is up 1.5% year-to-date, frontier, or “pre-emerging” markets, have been performing well. Frontier markets are accessible through the iShares MSCI Frontier 100 ETF (FM).

Market Realist – The graph above compares the price and return between the iShares MSCI Emerging Markets ETF (EEM) and the iShares MSCI Frontier 100 ETF (FM). Frontier markets have performed very well, with stellar returns of 42.2% in the last 12 months. On the other hand, emerging markets (VWO) gave returns of only 1.6% in the same period.

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Also, the correlation between the S&P 500 (SPY)(IVV) and frontier markets is 0.39, compared to the correlation of 0.82 between the S&P 500 and emerging markets, considering monthly returns for the last ten years. This means that the diversification benefits of investing in frontier markets are better than those of investing in emerging markets, considering a portfolio with only U.S. stocks.

Please read our series 3 must-know truths about emerging market investments to learn more about investing in emerging markets.

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