End of an Era: Closure of World’s Only Physically Investing Frontier Markets ETF Reflects Industry Trends

The imminent closure of the world’s only exchange traded fund physically investing in frontier markets marks the end of an era, heralding the conclusion of a 12-year experiment. BlackRock announced its decision to liquidate its previously-$400 million iShares Frontier and Select Emerging Markets ETF (FM) in 2025 due to “persistent liquidity challenges,” effectively bringing an end to the attempt to extend the ETF format into a field known for its illiquidity. This move will leave the $92 million Xtrackers S&P Select Frontier Swap Ucits ETF (DX2Z) as the sole frontier equity ETF globally, relying on synthetic swap-based replication.

The exodus of funds physically investing in frontier markets reflects a broader trend within the ETF industry, with Global X and VanEck also axing their respective Nigeria and Egypt ETFs earlier this year due to various challenges including performance, liquidity, and investor interest concerns. The sector’s retreat from frontier markets stands in stark contrast to the wider success of the global ETF industry, which recently reached a record $13.1 trillion in assets by the end of June. However, the challenges faced by ETFs in regions with limited liquidity highlight the need for adaptability and resilience in navigating complex market conditions.

The iShares ETF’s closure comes as its underlying benchmark, the MSCI Frontier and Emerging Markets Select index, experienced a gradual reduction in frontier market components due to countries being promoted to emerging market status. This shift in the index composition, coupled with liquidity challenges and difficulties in repatriating proceeds from certain markets, ultimately led to the demise of the iShares ETF. While there are still mutual funds investing in frontier markets, the ETF industry’s retreat indicates the unique complexities and risks associated with operating in less liquid and challenging market environments.