After years of being snubbed by investors, frontier markets are enjoying renewed interest. And that’s partially due to the impressive performance being delivered by exchange-traded funds linked to frontier market countries.

The iShares Frontier and Select EM ETF (FM) has outperformed the iShares MSCI Emerging Markets ETF (EEM) by almost a full 3% over the past year. The frontier fund’s price has been lifted by its exposure to hot performing countries like Kazakhstan and Peru.

Launched in 2012, the iShares Frontier and Select fund is both the oldest and only diversified frontier markets fund in the U.S. ETF marketplace. Despite its recent outperformance, it has only $423 million in assets, which is a far cry from the multi-billion figures invested in ETFs tied to much more established emerging markets.

While there’s no universal agreement on the definition of a frontier market (the category can also encompass countries like Argentina, Bangladesh, Nigeria, Kenya and Vietnam), the names in this category are notably different from other global equities in the developed and emerging sectors for several reasons.

For instance, frontier market countries have smaller economies and less liquid financial markets, and they endure higher volatility. Many are in the early phases of economic development and have an elevated degree of currency and political risk.

Another star performer among frontier country exchange-traded funds has been the iShares MSCI Peru and Global Exposure ETF (EPU), which has jumped around 56% during the past year.

The boom in Peru, as in many frontier markets, has been largely driven by surging commodities. The country is rich in natural resources like copper, gold, silver and zinc, which contribute significantly to its economy through mining and export activities. Moreover, Peru’s diverse agricultural sector produces a steady flow of high-demand crops like avocados, coffee and quinoa.

Another beneficiary of the commodities boom is the VanEck Africa Index ETF (AFK), which is ahead by roughly 15% since the beginning of 2024.

Many African countries rely heavily on commodity exports, like precious metals, natural gas, cocoa and crude oil.

Additionally, Africa has a young and growing population, which lifts consumption and economic activity. Political stability is still shaky in some countries, but places like Botswana and Namibia have created templates for strong governance in neighboring states.

In Asia, the VanEck Vietnam ETF (VNM) has also delivered strong performance. Although it’s not in the top echelon of best performers, the Vietnam fund has still gained more than 10% during the past year.

Vietnam’s rapidly growing economy has become a key hub for electronics, textiles and automotive manufacturing. The country is undergoing economic reforms to liberalize markets, promote private sector development and improve business growth, and these trends have turned it into an attractive place for foreign direct investments.

Does it make sense for advisors to add frontier markets to client portfolios?

It could, especially if they want to diversify away from U.S. equities to avoid home country bias. Younger clients with enough time to ride through the zigzags might enjoy the opportunity for higher growth over a long time horizon.

Most investors will find it enough to invest in a diversified fund, such as the iShares Frontier and Select fund, to get diversification. More adventurous clients might wade into a regional or single-country ETF.

Whatever the approach, frontier markets are getting more attention and could be the missing spice in client portfolios.

Ron DeLegge II is the founder of and author of several books, including Habits of the Investing Greats and Portfolio Architecture: A Handbook for Investors.