Frontier Market ETFs: One Step Closer

I found this little nugget on Index Universe about a new index from STOXX (.pdf) to eventually become an investable product called Dow Jones STOXX EU Enlarged Select Dividend 15 Index. The index has just 15 stocks, and it captures high yielders from countries that were part of the Eurozone expansion.

The countries represented are Poland, Czech Republic, Romania, Slovenia, Malta and Hungary. Financials are the largest sector by far, followed by consumer, energy, industrials, materials and telecom.

According to Index Universe the yield of the index is 4.85. The article points out a couple of potential flaws, and it is clear that the current version of the index is narrower than most other indexes you will see.

According to the PDF linked to above the index is priced in several currencies, including the U.S. dollar, which paves the way for a U.S. based product.

It will be a while, if ever, for this to become an ETF. But it would open the way to European frontier markets in a transparent manner.

I have written a fair bit about frontier markets, and I think they have a small place in a diversified portfolio. I think 2% is probably about right for people for whom they are appropriate.

If this ever becomes an ETF and it is well received it will open the door for other frontier market products.

A big theme that I have been harping on since the start of this site is ETF innovation. A product that invests in frontier markets, whether it is this index or something else a few years from now, will be a big step toward new access.