One diversified ETF that does provide exposure to frontier markets directly is the iShares MSCI Frontier 100 Index Fund (FM), which tracks the  MSCI Frontier Markets 100 Index. The fund launched in September 2012 and now has $81.3 million in assets. Its largest country weightings are Kuwait, Qatar and Nigeria.  Financials make up 53.6 percent of the portfolio followed by telecom stocks.

“What we like about FM is the assets inside the portfolio are high quality,” says Todd Rosenbluth, S&P Capital IQ’s director of ETF and mutual fund research. Among the fund’s top 10 holdings are Nigerian Breweries Plc and Qatar National Bank, both of which have consistently raised dividends and increased earnings, Rosenbluth notes.

The fund is up 6.44 percent year to date and has returned 15.0 percent since inception. Its expense ratio is 0.79 percent, which is higher than its parent company’s popular iShares MSCI Emerging Markets Index Fund (EEM), which costs 0.69%.

An alternative is to invest in emerging market funds that add exposure to small- and mid-cap stocks, which tend to be more domestically oriented, Rosenbluth says. He highlights the iShares Core MSCI Emerging Markets ETF (IEMG). This ETF, which was launched in October 2012 and already has $920.7 million in assets, has 21 percent in small- and mid-cap stocks versus 13 percent in these stocks for EEM.

The fund is down 6.13 percent year to date, slightly better than the negative 7.45 percent return for EEM. “It’s doing slightly better because of its mid- and small-cap exposure,” Rosenbluth says.

On a country weighting basis it looks like a typical emerging market fund with Korea, Brazil and China its top three exposures. Its net expense ratio of 0.18 percent helps make IEMG one of the highest ranked emerging market ETFs in the S&P universe, Rosenbluth says.

Still another option is to invest in emerging market funds that invest in the least risky stocks. That will provide a slightly different exposure to emerging markets than is typical, Rosenbluth says. He highlights the PowerShares S&P Emerging Markets Low Volatility Portfolio (EELV) fund, which was launched in January 2012 and has $128.8 million in assets. South Africa and Malaysia are its top two country exposures.

In addition, it has a higher weighting in more defensive sectors such as consumer staples and telecom compared to typical emerging market ETFs. Those two sectors make up 15.2 percent and 11.5 percent of its portfolio, respectively, compared to 8.16 percent and 7.12 percent for EEM. The fund is down 0.83 percent year-to-date, but since inception it’s up 12.93 percent. Its net expense ratio is 0.29 percent.

Beyond ETFs

Because of the difficulty in gaining exposure to smaller and frontier emerging markets through passive ETFs, Young recommends investors consider actively managed mutual funds.  “Market inefficiencies are greater, so it is very important to have active management,” he contends.