ETF Expert

Could the ETF providers have introduced frontier country investing at a less opportune moment in time? Probably not.

It was just about 1 year ago when intrigue in MENA (Middle East North Africa) began to take root. With emerging Asia ETFs and emerging Latin America ETFs having posted extraordinary gains for nearly 6 years, providers began touting the potential of even more exotic investing landscapes.

"South Africa?" some would scoff. The monster opportunities existed in northern Africa, in places like Morocco and Egypt. "Israel?" others retorted with apparent frustration. Real Middle Eastern growth taps Kuwait and Bahrain.

Unfortunately, the entire world's economic engine had been derailed by financial stupidity in the westernized, developed nations. Further, the idea that emerging markets or frontier markets could "decouple" from the U.S. was premature at best.

(Note: Unlike frontier markets, emerging markets like China and Brazil seem to have a leg up on decoupling going forward. Review "Emerging Market Success and the Return of "Decoupling.")

Frontier markets, for the most part, are still too dependent on selling their goods to the developed world. Whereas China and Brazil can sell to one another, bolstering the respective middle classes, many in the Middle East and in Africa require developed world purchasing of their exports.

It follows that the Vanguard Emerging Market Fund (VWO) is handily outpacing PowerShares MENA (PMNA), Claymore Frontier Markets(FRN), Market Vectors Gulf States (MES) as well as Market Vectors Africa (AFK).

Year-over-year, the "Gulf" region appears to be having more difficulties; the precipitous drop in oil form $145+ per barrel to $34 per barrel has a great deal with the misfortune. Moreover, countries like Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates rely heavily on their financial segment. Not surprisingly, then, a global credit crisis may have thrown a wrench in the works.

Market Vectors Africa Index Fund (AFK), on the flip side, may be having a decent renaissance due to untapped resources and materials. And then there's the curious case of Claymore Frontier Markets (FRN), with a 65% weighting in Chile, Poland and Egypt. Chile is hardly an emerging market, but FRN at least strives to be a "frontier" alternative to the Vanguard Emerging Market Fund (VWO).

Still, I can't help but feel that purchasing a frontier market ETF like Claymore Frontier Markets (FRN) is primarily a basic materials/natural resources choice. And if that's the case, you're not getting that much diversification from higher-volume investments like VWO, South Africa  (EZA) or Global Materials (MXI).

Want to know more about the success of Brazil and South Africa? They're highly regarded as energy and materials havens. It follows that the optimism that began in March concerning the reflation of the global economic industrial cycle helped these areas the most!

If you'd like to learn more about ETF investing… then tune into "In the Money With Gary Gordon." You can listen to the show "live" or via podcast or on your iPod at this link.

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.