Frontier Market ETFs: Guide to the Guggenheim Frontier Markets ETF (FRN)


For investors unable to access local frontier markets directly, one option is to use exchange-traded funds (ETFs) instead. The most well known of these ETFs is the iShares MSCI Frontier 100 Index Fund (NYSE ticker: FM). However, as we covered in a post before, this ETF has many limitations and is an imperfect way of gaining exposure to frontier markets. The second largest ETF with a specific frontier market focus is the Guggenheim Frontier Markets ETF (NYSE ticker: FRN). Similar to FM, the Guggenheim Frontier Markets ETF is heavily weighted in specific regions and areas, resulting in another ETF that is limited in scope but one that is quite different from FM.

Here are five things every investor should know before investing in the Guggenheim Frontier Markets ETF:

1. FRN is focused around Depository Receipts

The Guggenheim Frontier Markets ETF tracks the performance of the BNY Mellon New Frontier DR Index. This index tracks only American or Global depository receipts (ADRs & GDRs) listed on four exchanges: The London Stock Exchange (LSE), The New York Stock Exchange (NYSE), NYSE Amex, and NASDAQ Stock Market (NASDAQ). This is done for liquidity reasons, but also because this index has a dual goal of serving both Frontier Market investors and depository receipt issuers. There is also a liquidity/size restriction to qualifying for this index, with a minimum market capitalization of $100m USD.

2. There are 41 countries eligible to be covered by this index..

Deciding which countries qualify as a frontier market is tricky, but FRN attempts to distinguish them by evaluating GDP Growth, Per Capita Income Growth, Past and Expected Inflation, Privatization of Infrastructure, and “Social Inequalities”. We could not find specific, quantitative criteria for each factor but 41 countries made the cut:

Africa: Ghana, Kenya, Malawi, Mauritius, Morocco, Nigeria, Tunisia, Zimbabwe

Asia: Bangladesh, Pakistan, Papua New Guinea, Sri Lanka, Vietnam

Europe: Bulgaria, Croatia, Czech Republic, Estonia, Georgia, Kazakhstan, Latvia, Lithuania, Poland, Romania, Slovak Republic, Slovenia, Ukraine

Latin America: Chile, Colombia, Ecuador, Jamaica, Panama, Peru and Trinidad & Tobago

Middle East: Bahrain, Jordan, Kuwait, Lebanon, Oman, Qatar,United Arab Emirates, Egypt

It is a comprehensive list comprising most of the frontier markets we normally keep an eye on, however..

3. Almost 80% of FRN is allocated to Latin America, with Chile comprising 45% of holdings!

The Guggenheim Frontier Market ETF should be renamed the “Latin America Featuring Chile” ETF. As of 30 September 2013, we found that an overwhelming majority of the fund is in Latin America with Chile (45%), Columbia (16%), and Argentina (12%) leading the way. Out of a possible 41 countries classified as frontier markets, FRN includes companies from just 9 of them (with a lone listing from the Isle of Man for a Kazakh company).

4. For African and Asian exposure, look elsewhere

For those looking to capture some of the stunning 40% YTD returns of African frontier markets, you are out of luck. FRN holds just one company in Africa, specifically Guaranty Trust Bank of Nigeria, which makes up about 4.5% of this ETF. Out of Asian frontier markets, Kazakhstan is the lone representative with three holdings (Halyk Savings Bank of Kazakhstan, KazMunaiGas Exploration Production, and Zhaikmunai) accounting for about 6% of the ETF.

5. FRN owns an Emerging Markets ETF as part of its holdings

The fund managers must have realized how stilted towards Latin America the fund was because they decided to allocate almost 1% of FRN to holding another ETF: the Vanguard FTSE Emerging Markets ETF. This is an ETF that focuses on emerging markets countries such as Brazil, China, and Taiwan. Not only could anyone looking to invest in FRN easily purchase this Vanguard ETF if they were looking for emerging markets exposure, but none of these countries represented in that ETF qualify as frontier markets set out by FRN’s own definitions. It is a bizarre inclusion that pushes the Guggenheim Frontier Markets ETF further away from it’s focus on frontier markets.


When looking at the prospectus for the Guggenheim Frontier Markets ETF, the ingredients were there to make a great frontier markets focused ETF. The list of countries included in its mandate aligned with our expectations, and the liquidity provisions made sense. However, in practice this ETF has strayed far from being a broad market frontier market ETF into a Latin American/Chile focused ETF with limited exposure to the integral markets in Africa and Asia. Unfortunately, for those looking for a one-stop shop of frontier markets exposure will need to look elsewhere for their needs.


  1. Thank you for the very interesting information. I would be curious to hear your thoughts about Market Vectors Africa Index (AFK). Do you think the South African/European/Canadian companies in that index work as a way to get access to African frontier markets? Similarly, Global X Central Asia & Mongolia Index (AZIA) is interesting; it seems like it tries to get access to central asia by including a lot of UK or Canadian companies that have major assets in Kazakhstan, Kyrgyzstan, or Mongolia. Thanks for the help!

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