Top ETFs for the Frontier Markets of Turkey, Thailand and South Africa

 Review of TUR, THD and EZA as 
 the Best Exchange Traded Funds 
 for Frontier Markets 
 During and After the Financial Crisis 

The top vehicles for growth include the exchange traded funds (ETFs) for the frontier markets of Thailand, Turkey and South Africa. The time frame for evaluation covers a crucial stretch of three years spanning the financial crisis of 2008 and its aftermath. In sizing up the performance of the funds, the key factors include the return on investment, the volatility of the pool, and the cost of maintenance.

As a rule, the vital features are interlinked rather than independent. As an example, a vehicle on the fast track to growth is prone to be more flighty than a sluggish one which plods along at a modest pace. Another sample lies in the cost structure: an index fund with a heavy burden of maintenance fees is prone to lag behind its rivals that have leaner structures.

In sizing up the index funds, a straightforward scheme is to begin with a list of the high flyers. Then the other factors such as risk and cost can be brought to bear on the appraisal.

For the tally at hand, the total return – consisting of the capital gain and dividend yield – covered a stretch of three years ending in March 2011. By this reckoning, the index fund for Turkey earned the gold medal.

Meanwhile, the pool for South Africa turned in a solid return coupled with a lower level of volatility. As a result, the African fund won the trophy for risk-adjusted returns.

In sizing up the efficiency of operations, the funds for Turkey and South Africa boasted a slim advantage over the pool for Thailand. On the other hand, the difference in maintenance fees was too small to have much of an impact on the rankings.

*   *   *

In order to identify the best choice of exchange traded fund in any market, an initial step is to compile a list of the top performers. In sizing up the candidates, the key criteria include the rate of capital gains, the level of price volatility, and the burden of maintenance fees.

In certain cases, additional concerns may come to the fore. A case in point is the yield from the dividends thrown off by an ETF.

On the whole, the features listed above are interlinked rather than independent. As an example, an exchange traded fund on a growth streak is apt to be more volatile than a sluggish one which plods along at a modest pace.

Another sample lies in the millstone of maintenance charges. Whatever the performance may have been in the past, an index fund with a heavy load is more likely than not in the future to lag behind its rivals with leaner structures.

In dealing with these issues, a sensible step is to begin with a muster of the leading funds in terms of growth. Then the other factors such as risk and cost can be brought to bear on the evaluation.

Length of History versus Number of Candidates

In preparing a roster of the leading funds, an obvious point of departure is the rate of return over the past several years. On the downside, though, a lot of exchange traded funds are relative newcomers to the financial forum.

The saplings of this sort do not have much of a track record. As a result, an investor who insists on a lengthy history will end up with a scanty pool of candidates.

Given this backdrop, the worldly investor has to trade off the length of the track record against the size of the candidate pool. At this early stage in the evolution of exchange traded funds, a reasonable compromise between the pair of opposing factors is a life span of 3 years or so.

Top 3 ETF List by Growth

One of the most popular sites on the Web is the multiplex hub maintained by Yahoo Finance. At this portal, a handy resource takes the form of a screening tool for exchange traded funds.

Thanks to the screener, a visitor to the site can readily obtain a list of the leading funds for the budding markets of the world. The geographic locales include frontier markets such as Egypt and Vietnam as well as emerging nations such as China and Brazil.

In picking out the winning funds, the period of evaluation covered a crucial stretch of three years ending in March 2011. During this period, the best performance was turned in by a trio of index funds dealing with far-flung countries round the globe.

The winning pools focused on the stock markets of Turkey, Thailand and South Africa. For these vehicles, the total return over the span of three years was 13.39, 13.05, and 13.03 percent a year on average, respectively (Yahoo, 2011).

Meanwhile, a sizable gap separated the triad of champions from the rest of the field. To be precise, the best turnout for the next tier of funds was an annual gain of 10.47 percent on average.

In the sections to come, we examine each of the leading funds in turn. In comparing the candidates, the main factors to consider include the degree of risk as well as the level of overhead and the amount of dividends.

Performance for Turkey

Based on the rate of capital gains, the winner of the ETF pageant was the iShares MSCI Turkey fund. The index fund trades in the U.S. under the ticker symbol of TUR. The goal of the vehicle is to replicate the performance, in terms of the price and yield, of the MSCI Turkey Investable Market Index before taking into account the burden of fees and expenses.

Meanwhile, the role of the target benchmark is to track the equity market as a whole in Turkey. The index fund invests at least 90% of its capital in the securities covered by the underlying index.

The assets under management may include a selection of the local shares listed on the Turkish bourse. In addition, the holdings may also take the form of depositary receipts of the original stocks; in the latter case, the offshoot securities are traded in foreign markets such as the U.S. bourse.

The exchange traded fund was launched in March 2008. As a result, the pool was just old enough to fall within the requirement of having a track record covering the past 3 years.

Growth and Risk

A popular measure of risk lies in the flightiness of an asset compared to the stock market as a whole. For this purpose, the standard benchmark of the overall market is the S&P 500 index which covers the heavyweights of the U.S. bourse.

The relative change in price for an asset compared to the market as a whole is known as the beta factor. For the fund based on Turkey, the value of beta over the course of three years was 1.36.

In other words, the index fund was prone to rise by 1.36 percent for every change of 1 percent in the S&P benchmark. By the same token, the vehicle was wont to fall by a similar amount during a unit change to the downside by the benchmark. In qualitative terms, the Turkish fund was moderately flighty compared to the market as a whole.

Another measure of risk lies in the payoff of an asset compared to its volatility. In particular, the Sharpe Ratio refers to the average gain divided by the dispersion of returns.

Over the latest stretch of three years, the Sharpe Ratio for the Turkish fund clocked in at 0.50 units. In other words, the vehicle offered the investor a gain of 0.50 percent each year for every percentage point of volatility.

Lean Machine

Yet another measure of performance lies in the efficiency of a fund. The stewards of the Turkish fund impose a maintenance charge of 0.61 percent each year of the assets under management.

On one hand, the fee has been baked into the value of the fund by the investing public. In other words, the price of the security on the open market takes the maintenance fee into account. For this reason, the administrative burden can be ignored in gauging the past performance of an ETF.

On the other hand, the maintenance charge is a measure of the efficiency of operations. For this reason, the overhead plays a role in the performance of the fund in the future.

Other things being equal, a lean vehicle is likely to outpace a bloated one. For this reason, a smallish fee is preferable to a biggish one from the standpoint of a canny investor.

Growth, Income, or Both?

A long-standing custom in the financial forum is the classification of stocks into two groups: growth versus income. This practice is an artifact of the financial forum in a mature economy such as the U.S.

In the developed regions of the world, the companies listed on the stock market tend to fall into two classes. In one camp lie the established firms, as exemplified by the titans of the S&P 500 index.

For an investor, a vital feature of a giant firm is a measure of stability. A whale is more likely than a shrimp to survive the rigors of competition, while its stock is apt to be less volatile.

A second, and related, appeal of the juggernaut lies in the prospect of cash payouts.  A colossus is more likely to provide its shareholders with a steady stream of dividends.

By contrast, the opposing camp contains the large cohort of bantam firms. The main appeal of a small or midsize concern is the potential for rapid growth.

A smallish company tends to plow most or all of its profits back into the enterprise in order to expand its business. For this reason, the stream of dividends is apt to be scanty or nonexistent.

Given this backdrop, the traditional investor in the developed world was expected to make a choice. The player could turn to the big fish for the sake of a stable income, or bet on the small fry while hoping for lusty growth.

On the other hand, a major transformation has been under way since the autumn of the previous century. The barrage of changes in the corporate environment, along with the upgrowth of the global economy, have blurred the lines between growth and income.

As the decades wore on, the heavyweights in the stock market took to whittling down the stream of dividends. Admittedly, the change in policy was fitful and halting rather than steady and gradual.

Despite the reversals from time to time, though, the general trend has been to the downside. At the dawn of the millennium, a representative payout for the companies in the S&P benchmark is a dividend stream that amounts to a couple of percent a year of the  value of the equity.

That level of payout is of course higher than the usual outlay from a smallish firm, which is apt to be little or nothing. On the other hand, the dividend yield of the corporate giants in the U.S. can be matched by the beefy firms listed on foreign bourses.

To cite an example, an investor in the index fund for Turkey would have enjoyed a stream of dividends in the same ballpark as the titans of U.S. market. Based on the latest price of the shares, the dividend yield over the previous year came out to an annual rate of 2.00%.

As a result, the investor in TUR could enjoy the boons of growth as well as income. In this way, the crumbling of the lines between capital gain and dividend yield is one of the hallmarks of the brave new world.

The makeover is simply another example of the plethora of changes which render obsolete a slew of assumptions and practices from the past. Many a precept which used to serve as gospel in the olden days has been trumped by a newborn truth spawned in the millennium.

Turnout for Thailand

Based on the total return, the runner-up in the global race was the iShares MSCI Thailand fund. The vehicle trades in the U.S. under the ticker symbol of THD. The objective of the pool is to replicate the price and yield, before fees and expenses, of the MSCI Thailand Investable Market Index.

Like the previous fund focused on Turkey, the pool dealing with Thailand was launched in March 2008. As a result, this rig also managed to squeeze in under the requirement of a price history of 3 years or more.

The dividend yield for THD came out to an annual level of 2.37%. The payout was somewhat better than the corresponding value of 2.00% for the Turkish fund.

As we saw earlier, a standard measure of risk lies in the jitter of an asset compared to the S&P benchmark of heavyweights in the United States. For the Thai fund, the beta factor amounted to 1.36. The level of volatility was the same as the figure for Turkey.

Meanwhile, the Sharpe Ratio for the Thai fund came out to 0.50 units. The latter value was identical to the level for the Turkish pool.

Another measure of performance involves the efficiency of an index fund. The stewards of the Thai pool impose a maintenance charge of 0.62 percent a year. The latter value is a tad bigger than the value of 0.61 for the Turkey fund.

Payoff for South Africa

From the standpoint of capital gains, the second runner-up in the worldwide pageant was the iShares MSCI South Africa fund, which flies under the banner of EZA. As the name suggests, the aim of the pool is to replicate the price and yield, before fees and expenses, of the MSCI MSCI South Africa Index. The benchmark covers stocks listed primarily on the Johannesburg Stock Exchange.

Unlike the previous two pools, the index fund for South Africa came to life in February 2003. As a result, the fund boasted a longer history than the other two contenders. For the sake of comparison, though, only the track record for the last 3 years was used in gauging the performance.

The dividend yield for EZA came out to an annual rate of 2.49%. The payout was higher than than the corresponding value of 2.37% for the Thai fund, and of 2.00% in the case of Turkey.

On the topic of turbulence, EZA featured a beta factor of 1.15 over the 3-year stretch. The outcome was lower than the corresponding value of 1.36 turned in by each of the funds for Thailand and Turkey.

In terms of risk-adjusted gains, the Sharpe Ratio for EZA came out to 0.53 units. The latter showing trumped the outturn of 0.50 for each of the two other pools.

We turn now to the efficiency of the vehicle. The stewards of the South African pool levy an administrative fee of 0.61% a year. The overhead is identical to the value of 0.61 for the Turkish fund. By contrast, the Thai fund had a slightly higher burden amounting to 0.62 percent.

Chart Action

Another way to compare the index funds is to plot their behavior on a single chart. The diagram below, adapted from Yahoo Finance (, spans a period of 5 years ending in spring 2011.

The red line portrays the relative performance of the index fund for South Africa over the entire stretch. By way of comparison, the purple line depicts the trajectory of the S&P 500 benchmark.

The price action for the Turkish fund is shown in blue; and likewise for the Thai vehicle in green. In line with earlier remarks, these two vehicles sported a history of just over three years starting from the end of March 2008.

The period of evaluation is denoted in the chart by the area shaded in light blue. For the sake of comparison, the end of March 2008 serves as the baseline for each of the instruments; namely, the trio of index funds as well as the S&P benchmark.

A prominent feature on the chart is the turbulence whipped up during the financial crisis of 2008. The stormy passage is illustrated by the pounding taken by the S&P benchmark.

In line with the norm for dynamic assets, the funds for the frontier markets bounced around a lot more than the S&P index. On the bright side, though, the peppy vehicles recovered much faster than the market benchmark in the years to follow.

Moreover, each of the frontier markets recouped their losses and trudged higher by 2010. The chart also portrays the fact that EZA lagged somewhat behind TUR and THD around spring 2011.

On the other hand, the index fund for South Africa crumpled less than its rivals in the midst of the financial fiasco. Thanks to the greater level of stability, EZA edged out the competition in terms of risk-adjusted gains.

Final Tally for Frontier Markets

The top 3 funds for frontier markets displayed comparable levels of growth, risk and cost. Based on the performance over a span of three years, the best showing in each category was as follows.

  • Total Return: 13.39% a year on average for TUR
  • Dividend Yield: 2.49% for EZA  
  • Least Cost: 0.61% a year for TUR and EZA
  • Least Risk (Beta): 1.15 for EZA 
  • Risk-Adjusted Gain (Sharpe): 0.53 for EZA 

To sum up, the Turkish fund took the top prize for the total return on investment. On the other hand, the pool for South Africa offered the highest dividends as well as the lowest volatility. Thanks in good measure to the muted level of turbulence, the African contender won the cup in terms of risk-adjusted returns.

Meanwhile, the vehicles for Turkey and South Africa had a slim advantage over their Thai rival in the matter of maintenance fees. On the other hand, the edge was too small to have much impact on the relative performance of the funds.

Tips and Caveats

A vital issue that lies beyond the ambit of this article relates to the lack of a panacea in the financial forum. Given the absence of a universal solution, every investor has to size up the prospective choices in light of personal circumstances.

A prime example of a personal trait is the level of tolerance for risk. Another sample is the way in which a security complements the other assets within a larger portfolio.

Given the diversity of needs and wants, the best choice of ETF for one person could well be a lousy pick for someone else. For instance, a particular investor might decide that a high rate of growth is not worth the headache brought on by the violent thrash of prices.

Turning to a different topic, the prudent player is obliged to consult multiple sources of information in order to obtain a credible and rounded view of the candidate under review. A case in point is a confirmation of the past statistics as well as the current status of an ETF. Another instance is the long-range outlook for the target market tracked by an index fund.

The field of exchange traded funds is still in its infancy. Due to the jejune state of affairs, the information available on the Web – including the data provided by renowned and popular portals such as Yahoo Finance – is often beset by a raft of flaws. A case in point is a bunch of performance figures which turns out to be incorrect, inconsistent and/or misleading.

Given the welter of pitfalls, the mindful investor has to tread carefully before making a vital decision of any sort. The hazards of faulty information, along with a medley of remedial measures, are discussed at greater length in Kim (2011a).

This article has covered about a bunch of topics relating to frontier markets. Given the focus of the write-up, a detailed discussion of generic issues would have been inapt.

An example of the latter is a rundown of alternative ways to measure the volatility of the an asset. Another sample is a review of performance measures such as the risk-adjusted return.

Further information on the generic issues is available elsewhere. A good place to start is a case study dealing with the evaluation of exchange traded funds in general (Kim, 2011b).


Kim, S.  “Cruddy Information on Exchange Traded Funds.” – tapped 2011a/5/4.

Kim, S.  “Top 10 ETF List for Growth – Performance, Risk and Cost.” – tapped 2011b/5/4.

Yahoo Finance.   “Exchange-Traded Funds (ETF) Center.”  Search results under the category of “Diversified Emerging” funds. – tapped 2011/5/4.

*   *   *