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Top-Performing Emerging Market Funds Focusing on Frontier Markets and Small Caps
In the world of investing, a focus on frontier markets and small caps within emerging markets has been a growing trend. Here's a look at some of the top-performing funds in this category as of mid-2025.
ETFs Leading the Way
Several Exchange-Traded Funds (ETFs) have shown impressive performance in this sector. For instance, the Global X MSCI Argentina ETF (ARGT) has returned an impressive 48.99% in the past year, making it a strong choice for those interested in Argentina, a frontier market by some classifications.
Similarly, the KraneShares Hang Seng TECH Index ETF (KTEC) and KraneShares Emerging Markets Consumer Technology Index ETF (KEMQ) have returned 45.32% and 41.62% respectively, highlighting the potential of emerging tech markets within Asia.
The iShares MSCI China Small-Cap ETF (ECNS) focuses on China small caps and has returned 34.04% in the past year, demonstrating the strength of this specific segment within emerging markets. The iShares MSCI Poland ETF (EPOL) has also performed well, with a return of 33.31%, making Poland, a frontier market in Europe, another interesting option.
Actively Managed Funds Shine
In the realm of actively managed funds, the VanEck Emerging Markets Fund and the Matthews Emerging Markets Equity Fund have been standouts. The VanEck Emerging Markets Fund outperformed its benchmark in Q2 2025, with a +13.79% quarterly return, primarily due to stock selection in India and Brazil. However, its positioning in frontier markets like Kazakhstan slightly detracted from its performance.
The Matthews Emerging Markets Equity Fund, established in 2020, has a growth-oriented strategy and has outperformed its benchmark amidst recovering markets. The fund is noted for selective opportunities in emerging and frontier markets, although detailed performance numbers for 2025 are not specified in the results.
Building a Portfolio
For a portfolio focused specifically on frontier markets and small caps, ETFs like ARGT and EPOL, alongside small-cap focused products such as ECNS, could be effective. Complementing these with active funds like the VanEck Emerging Markets Fund or the Matthews Emerging Markets Equity Fund could offer further diversification and stock selection advantages.
Always remember to conduct further due diligence on fund holdings and strategy alignment with your specific frontier small-cap focus before investing.
A Look Back
The interest in emerging markets began to grow in 2004, following the bursting of the dot-com bubble. Financial institutions started promoting funds and certificates focused on emerging markets, viewing them as the future. The author, for instance, opened a new account at an online fund platform in 2004 and started investing in funds like the abrdn SICAV I - Emer. Markets Equity A Acc USD fund, which had a 20-year track record of 630 percent at the time.
In 2006, the author added the HSBC BRIC Equity (ISIN: LU0205170342) to their portfolio, reflecting the growing interest in the BRIC countries (Brazil, Russia, India, and China) as an alternative to the seven major industrial nations (G7). Jim O'Neill, chief economist of the US investment bank Goldman Sachs, had predicted in 2001 that the BRIC countries would be an alternative to the G7 by 2050.
Focused Funds
Some funds, like the Magna New Frontiers Fund R EUR, invest in companies in frontier markets regardless of whether they are included in the index. As of now, the fund's current largest country position is Vietnam. The fund's top holdings include TSMC and Samsung Electronics, with Tencent and Alibaba among other top values. The Baillie Gifford Worldwide Em. Mkts Leading Co. Fd B EUR Acc, another fund, has only 43 stocks in total, with five largest positions making up more than 30% of the portfolio.
The author's current emerging market strategy covers three sub-areas: investing in leading companies, small companies, and frontier markets. The JPM Emerging Markets Small Cap C (perf) (acc) - EUR fund, for instance, focuses solely on small caps. Since its inception in November 2007, the fund has generated a return of 170%.
However, not all funds focusing on emerging markets have been successful. The abrdn SICAV I - Emer. Markets Equity A Acc USD fund was closed in 2013 due to attracting too much capital.
In conclusion, the focus on frontier markets and small caps within emerging markets has proven to be a profitable strategy for many investors. Whether through ETFs or actively managed funds, this sector continues to offer exciting opportunities for growth-oriented investors.
Economic and social policy play a significant role in shaping the financial landscape of these markets, as the performance of these funds often depends on the stability and growth strategies adopted by the governments of these countries.
Investing in top-performing emerging market funds, such as the VanEck Emerging Markets Fund and the Matthews Emerging Markets Equity Fund, alongside ETFs like ARGT, EPOL, and ECNS, could provide an optimized balance of growth potential and diversification, offering a well-rounded approach for investors focused on frontier markets and small caps.
