Guide to the Global X Next Emerging & Frontier ETF (EMFM)

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We continue with our series of looking at exchange traded funds that focus on frontier markets. You can find the rest of the guides we’ve done so far (for AFK, FM, FRN, and PAK) here. Using these ETFs can be invaluable for retail investors to invest in frontier markets without the pain and hassle of dealing with onshore accounts.

We took a look at the Global X Next Emerging & Frontier ETF, here are the salient details:

  • Ticker: EMFM
  • Listed: NYSE
  • Inception Date: 06/11/2013
  • Total annual fee: 0.58%
  • Number of holdings: 203

The ETF is very new having launched in November 2013, and its management fee is very reasonable for an EM/FM focused ETF.

Geographical Breakdown

EMFM has a roughly 82%/18% split between emerging and frontier market country holdings. You can see the breakdown as per their factsheet (as of 30 June 2015 below:

EMFMCtryBreakdownWhile the EM countries include all countries designated as EM by MSCI, the UAE and Qatar should also count as EM countries by the same definition. This is an almost 5.5% swing from FM to EM, hence our 82%/18% split. The totals will not add up in the breakdowns above due to some cash holdings.

We consider some of the EM-labelled countries, such as Colombia, Egypt, and Peru, to be more frontier market in nature, but even so EMFM is around 80% emerging market focused instead of giving you exposure to the frontier.

However, it is geographically quite diverse with no bias towards one continent (an issue that plagues both FM and AFK). We are also glad to see 23-26 (depending on definition) frontier market countries represented.

Those looking for exposure to Africa will be disappointed though, with Africa only representing around 13.8% of which 10.5% is South Africa. We are curious as to why weightings for Kenya or Nigeria are not much larger – they are currently under Cambodia and Georgia, and similarly weighted to Laos.

Industry Breakdown

EMFM has a relatively diverse set of holdings on an industry basis. This is from their fact sheet:

EMFMIndustryBreakdownNo real surprises here, and while Financials, Materials, and Telecom holdings take up almost half of the ETF, this is not unusual for EM and FM focused funds.

The diverse industry make-up is a result of a relatively large number of holdings. The largest holding, Naspers, accounts for just under 2% of the fund while only 28 other holdings have a weight of 1% or more.

Fees and Dividends

According to ETFdb, this ETF has had an annual dividend yield of 2.01% although the fund’s own website cites a 30-day SEC Yield of 3.35%. This is low versus most other emerging and frontier market ETFs, since they usually have higher local interest rates to compensate for.

Fees are relatively low though, with a Management fee of 0.49% and Custody Fee of 0.09%, totaling 0.58% annually. This is very low for this type of fund and helps slightly to offset the lower yield.

Liquidity

With net assets of around $106 million, it is bigger than other frontier market ETFs like FRN or AFK, but still dwarfed by the industry leader, FM. Average volume is just over 30,000 shares a day, amounting to a daily turnover of about $600,000 USD a day. It is actually quite impressive how quickly it’s managed to overtake the other frontier market ETFs in size, and given it’s exposure to a greater number of countries than other ETFs, we expect this fund to grow.

The caveat is in its performance, since it is down almost 24% this year, making it hard to attract new investors in the near term.

Conclusion

We are again impressed by Global X’s offering, and are glad that the frontier market ETF space is growing. Our main issue with previous ETFs was the lack of geographical diversity in FM and FRN, something which EMFM addresses with its exposure to around 25 frontier market countries. While the 80/20 split between EM and FM countries is a bit lacking for those looking for just frontier market exposure, EMFM looks to be the most diversified frontier market ETF available right now.

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