A sign of the exchange-traded fund (ETF) industry’s maturity is the change in our annual ranking of the top-performing ETFs, which starts here. We are now ranking funds based on five-year returns. Previously, we were restricted to only looking at three years of return data because there were simply not enough ETFs in all categories with five-year track records.

This change doesn’t hide the fact that there are still many “new” ETFs. Since the start of July 2011, 800 ETFs and exchange-traded notes (which I’ll also refer to as ETFs for the sake of simplicity) have been launched. The majority of these newer funds are either based on alternative versions of existing indexing strategies or designed to provide access to whatever investing theme the fund families think will sell. Always keep a firm hand on your wallet when someone pitches you a new strategy.

This is not to say that every new fund or investing idea is bad and should be avoided. Some are worthy of consideration. Among them are funds targeting frontier markets.

Frontier markets comprise countries with small economies with the potential for strong growth. These countries rank below emerging markets in terms of size and economic development. Examples include Vietnam, Pakistan, Nigeria, Kenya, Peru and Chile.

I’m not going to downplay reality: This is not a geographic segment suitable for every investor. One needs patience and a long-term view. The ability to tolerate national and regional idiosyncratic risk is required. Political instability, war, drought, disease, poverty and inadequate infrastructure are all potential problems.

For those willing to view risk in terms of potential return, opportunity exists. The World Bank describes Vietnam as a “development success story,” says Peru “is one of best-performing economies in Latin America” and predicts Kenya will maintain economic growth in excess of 6% through 2017.

What’s interesting about the frontier markets is that when the fund offerings are looked at, it quickly becomes evident that they haven’t attracted significant investment dollars from U.S. investors. I was only able to find six funds providing broad exposure to frontier markets: two mutual funds and four ETFs. The combined assets under management for these five funds is under $3.0 billion, a proverbial drop in the bucket for the investment industry. Frontier markets are an example of opportunity existing where many aren’t even looking.

Our founder, Jim Cloonan, added the iShares MSCI Frontier 100 (FM) to our Model Fund Portfolio in July 2013. He explained the decision in the August 2013 AAII Journal by saying, “I feel that most emerging markets have emerged or are maybe over-emerged and the opportunity, though risky, is in the even smaller economies.”

The iShares fund is the second-largest fund specifically targeting frontier markets. The largest is Wasatch Frontier Emerging Small Countries Fund (WAFMX), a mutual fund. You’ll find an interview with this fund’s manager here. As you read it, you will realize that these countries are very unique from an investment standpoint.

On a different topic, we received an email from a member saying, “Often you have articles that touch on life planning issues—retirement, spousal death, how to pick an adviser, etc. I would suggest an article that helps pick an adviser for the latter stages of life when the member or spouse is more fragile and less able to care for the details of life.” I forwarded the request to Bob Johnson. He and David Littell, both of The American College of Financial Services, responded with a very useful article you will find here. (I’ve already mailed a copy of it to my parents and in-laws.)

Suggestions for articles are always welcome. While we can’t fulfill every request, we do take them into consideration. If you have a suggestion, let us know at journal@AAII.com.

Wishing you prosperity,

Charles Rotblut, CFA
Editor, AAII Journal
@CharlesRAAII