ETFs (exchange-traded funds) give US investors unprecedented access to frontier markets – less accessible but still ‘investable’ high-growth economies in the developing world.

But you need to tread carefully, says Sara Nunnally in Taipan’s Emerging Markets blog. Although there is a bunch of so-called “frontier ETFs” out there to chose from, not all of them make good investments.

If ETFs are your thing, stick to those focused on the Middle East and North Africa, says Sara…

Looks like the world is becoming more focused on frontier markets in Africa and the Middle East. Several new ETFs have popped up, making access to these markets so much easier for US investors.

They are Vectors Gulf States ETF (MES:NYSE), the Market Vectors Africa ETF (AFK:NYSE), the PowerShares MENA Frontier Countries ETF (PMNA:Nasdaq) and Claymore’s Frontier Markets ETF (FRN:NYSE). (Note: The FRN includes investments in a number of other frontier markets, including Latin American and Eastern European countries.)

But just because they give you access to new markets doesn’t necessarily mean they’re great bets…

There are good economic factors out there, and great growth statistics for a number of nations in this region, but keep in mind that these countries are starting from ground zero. We’re talking very little infrastructure and fledgling economies. And a whole lot of social and political unrest in many areas makes for a risky and unstable environment.

In my opinion, I think these ETFs will garner a lot of interest, but investors might do better looking at specific economies or sectors and cherry-picking their opportunities.

That might mean doing a heck of a lot more research, and possibly buying an asset on a foreign exchange, so this type of frontier investing isn’t for everyone. That said, a number of MENA (Middle East/North Africa) and Gulf State countries are listed on major European exchanges, like London, Paris, and on many exchanges in Germany. That should calm some investor fears.

In my opinion, investors should focus more on the following countries for opportunities: Morocco, Kenya, Israel, UAE, Oman, Kuwait and Qatar. Finance, construction, and telecommunications seem to be the top three sectors these ETFs are focused on, aside from energy and commodities, that is.

Egypt is another good option, but there seems to be a bit of concern over food prices and political and religious policy. Nigeria would be an amazing place for investors if it would get its act together, but for now is a no go zone because of all the corruption and terrorist activity.

If anyone is interested in jumping into these ETFs, I think the ones focused on the Middle East and/or North Africa would be a better bet. That’s the PowerShares MENA Frontier Countries ETF (NASDAQ:PMNA) and the Market Vectors Gulf States ETF (NYSE:MES).

Source: Frontier Markets Big on the Radar Screen