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A vendor walks her merchandise on a bicycle along a street in Hanoi, Vietnam.Luong Thai Linh/Bloomberg

As China, India and other formerly hot emerging markets have matured, investors are looking elsewhere for returns.

Frontier markets – Argentina and Nigeria and other countries more risky than those traditionally considered "emerging" – are one such option. Of course, they come with smatterings of caveats, not the least of which is underwhelming performance over the past two years. Frontier-market funds generally have low liquidity and minuscule market capitalizations, and they are difficult to get into in the first place.

But retail investors who want to play a game of chicken with their portfolios are welcome to join in. If they do, experts suggest they work with an adviser or manager, allocate only a wee portion of their portfolios, and aim for broad exposure through multicountry funds.

Canadians usually invest in frontier markets through U.S.-traded ETFs.

Kuwait and Argentina are today's biggest players in frontier-market exchange-traded funds (ETFs), making up about 40 per cent of BlackRock Inc.'s New York-traded iShares MSCI Frontier 100 ETF. Nigeria and Pakistan are next in line, at about 10 per cent each.

In terms of sector weightings, financials make up more than half of the ETF, followed by telecom and energy.

Consider that the Toronto Stock Exchange, too, is heavily weighted toward financial and energy stocks. "By delving into frontier markets, Canadians are taking on a larger concentration of sectors that are already well-represented here," says Kurt Reiman, BlackRock's Canadian chief investment strategist.

Even though frontier markets can still have low correlations with developed and emerging markets, Mr. Reiman says, "you don't care about the diversification benefit of an asset class that's suffering."

Returns among frontier-market ETFs are varied. At Tuesday's close, the iShares MSCI Frontier 100 ETF had year-to-date returns of about half a percent; the Guggenheim Frontier Markets ETF had gone up about 5.5 per cent; and the more broad Global X Next Emerging & Frontier ETF had risen nearly 14 per cent.

Because these financial markets are underdeveloped, their daily trading volumes and market caps are generally pretty small. And when looking for exposure to frontier countries, it's important to consider the notion of safety in numbers, says Cynthia Caskey, a vice-president and private wealth-management adviser with TD Wealth.

While iShares's frontier ETF has about $413-million (U.S.) in assets, Guggenheim's has just $39-million. (By comparison, emerging-market funds are much larger: The U.S.-traded iShares MSCI Emerging Markets ETF has assets of $22-billion.)

"You always have a bit of concern, when they get to be too small, about whether or not the costs of running them will get to be too large," Ms. Caskey says. "So you get to wonder whether the provider is going to continue that fund or not."

"Our analysts always like larger funds because that means there's going to be greater longevity in the mandate."

Investors who buy into frontier markets tend not to allocate more than 1 or 2 per cent of their portfolios to them, experts say.

Tyler Mordy, president and chief investment officer of Toronto-based Forstrong Global Asset Management, which manages globally diversified ETF portfolios for Canadian clients, says that with frontier markets, an investment "should be broad-based, it should be a longer-running investment horizon and a longer holding period than perhaps you would see in the emerging world."

But perhaps the best way to get exposure, if at all, is to dabble, says Patricia Oey, a senior analyst with Morningstar Inc. in Chicago.

"I would say 99.9 per cent of investors do not need frontier markets in their portfolio," Ms. Oey says. "If they have an international equity fund or an emerging markets fund, and maybe that portfolio manager might have one or two frontier names, that's fine.

"But for a regular investor to be looking at a specific frontier market fund, it's not for most investors."

Waiting in the wings

While frontier markets generally have a few things in common – small market caps and low liquidity, for instance – each country tends to be driven by a major factor that can have serious sway. Hence the need for broad exposure. Here's some good and bad news in four frontier markets.

Vietnam: Thanks to the Trans-Pacific Partnership trade agreement, export-friendly Vietnam may see a huge boost to its GDP. This country represents only about 4 per cent of the frontier market space, but trade deals that could emerge from TPP have investors taking a closer look.

Nigeria: Radical attacks on pipelines and oil facilities have hurt the country's oil-heavy economy, the biggest in Africa. If the attacks slow and supply returns to normal, the economy and markets would improve with it. But that may be months away at best.

Kuwait: It's a country with big money but plenty of room to develop. Its stocks are heavily weighted in financials, which in turn are likely to be tied to the local energy sector.

Argentina: South America's third-biggest economy just offered its first bond sale in 15 years, giving it better access to global investors and, the country's leaders hope, growth in financial market liquidity.

Correction: An earlier version of this story gave an incorrect affiliation for Cynthia Caskey. She works at TD Wealth.