Frontier markets, and the mutual funds and the exchanged-traded funds that invest in them, are rapidly becoming a separate asset class, distinct from emerging markets. In 1992, the term frontier markets was coined by the International Finance Corp. to designate countries that have lower market capitalization and liquidity than more traditional, so-called emerging markets, which are more developed.

Frontier markets represent approximately 1 percent of the entire international equity universe. As of December 2011, MSCI Barra identified 25 countries as frontier markets. Approximately 30 percent of the total global population is spread across frontier nations, and some are among the world’s fastest-growing economies. These include Kuwait, Qatar, UAE, Nigeria, Kazakhstan, Pakistan, Argentina, Sri Lanka, Bulgaria, Croatia, Kenya and Oman. These nations have demonstrated a low relative correlation to traditional U.S. equity markets and, thus, over time, may constitute a positive element to broader portfolios seeking diversification and risk management.

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