ETF Providers Jump Into MENA Funds

Claymore Securities last week became the first firm to launch a frontier markets ETF and Van Eck Global, Invesco PowerShares and Wisdom Tree Investments have funds in filing. The funds are also known as MENAs because they invest mainly in the Middle East and North Africa.

Jeff Ptak, director of exchange-traded security research at Morningstar, said firms are lining up to invest in the region because it is relatively untapped. "Frontier markets are starved for capital and uncorrelated to the developed markets. It is a relatively untouched region and that is an attribute prized by asset allocators," said Ptak. He added that because exposure to frontier markets on the major indexes is nominal at best there are many opportunities for investors.

Van Eck has three Market Vectors ETFs in filing--one focused on Africa, one on the Middle East and another targeting all frontier markets. The PowerShares MENA Frontier Countries and Wisdom Tree Middle East Dividend ETFs both focus on Middle Eastern and North African countries such as Egypt, Jordan, Nigeria and the United Arab Emirates. The Claymore/BNY Frontier Select DR ETF targets global frontier markets and is benchmarked to the BNY Frontier Select DR Index. The Claymore ETF is the only fund to disclose expenses, which are 65 basis points.

Ed McRedmond, senior v.p. of portfolio strategies at PowerShares, said MENA portfolios are a good fit for the firm's lineup and are attractive because of their low correlation. "Investors are looking for things to add to their portfolio that might zig when the rest of it zags," he said. Van Eck and Wisdom Tree officials had no comment. Claymore officials did not return a call for comment.

Ptak said that single country frontier market ETFs will probably follow MENA fund launches, but liquidity could be an obstacle. For example, he said, "If you invest in Egypt you have to think about whether the liquidity behind the fund is conducive to market making. Where there is a will, there always seems to be a way with ETF providers." --Mike Schnitzel

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