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MSCI Launches More 'Liquid' Frontier Index
By Staff | 11 April, 2012

MSCI has today launched a frontier markets index designed to provide enhanced tradeability, which iShares has already licensed to use as the underlying index for a new ETF.

The MSCI Frontier Markets 100 index comprises the 100 largest and most liquid constituents of the broader MSCI Frontier Markets index.

Frontier markets indices can prove difficult for ETF providers to track, particularly if they want to use the physical replication method as poor liquidity and low trading volumes can hamper their efforts to make up the index basket.

MSCI has designed this latest index to combat this problem and to reduce the tracking error commonly associated with frontier market ETFs.

“We have seen significant demand from clients around the world for a more tradable version of our MSCI Frontier Markets index—especially from those who face various obstacles in replicating broader frontier markets indices,” said Baer Pettit, managing director and head of the MSCI index business. “We expect that the MSCI Frontier Markets 100 index will serve as the basis for numerous index-linked investment vehicles, ultimately providing investors with new ways to gain exposure to the frontier markets.”

To enhance tradeability, MSCI has screened the broader index, made up of 155 constituents, and removed all securities that were subject to a limited investability factor (LIF) due to low foreign room, or that had a 12-month annualised traded value ratio (ATVR) below 10 percent.

A 50 percent country cap was used to construct the index, although so far no country has neared that level of concentration. Kuwait accounts for the biggest portion of the index, with just less than 30 percent.

No further details of the iShares launch have been released at this time.

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