July 16, 2012 / by Emerging Money/ Nasdaq Community

One frontier market frequently on my list of attractive investments is Nigeria , a vital emerging economy.

Nigeria is a country plagued with problems, but it continues to grow at a healthy pace and is just beginning to tap into all of its resources, including its people. This high-risk frontier market has been providing big returns for investors. It has a huge and growing population with untapped potential, light crude oil ideal for making gasoline and, unlike some of its contemporaries, sophisticated financial markets.

It is hard to find another economy anywhere with 160 million people and an economy growing at 7% with such potential. Nigeria is Africa 's second biggest economy and top oil producer. Despite the risks and challenges, foreign direct investment into Nigeria has hovered between $6 billion and $8.5 billion since 2007 according to World Bank figures.

Economic growth in Nigeria has averaged about 7.4% annually over the past decade and remained healthy in 2011 at 6.9%. Growth has been driven by the non-oil sector including telecommunications, construction, wholesale and retail trade, hotel and restaurant services, manufacturing and agriculture. 2012 and 2013 growth is projected at 6.9% and 6.6% respectively. Inflation, which has been stubbornly high, is expected to reach the government's target rate just below 10% in 2013. As a result of monetary policy changes inflation fell from 13.7% in 2010 to 10.2% in 2011. Expectations are for it to fall to 10.1% in 2012 and 8.4% in 2013.

Problems persist, but also demonstrate the potential of this frontier market.

High economic growth has not cut poverty and has yet to create many necessary jobs. The unemployment rate in 2011 was 23.9%, up from 21.1% in 2010, and about two thirds of the population lives on less than one U.S. dollar per day. Unemployment remains especially high within certain demographics: in the 15-24 age group it was 37.7%; for 25-44 year olds 22.4%.

Additional challenges which also expose opportunity are an infrastructure in dire need of repair and expansion, over-dependence on the oil and gas industry, and corruption. Widespread as corruption is, Nigeria is making a concerted effort and making headway in reducing it.

Ultimately Nigeria is a frontier market on the rise that is still in the early innings of its economic development. Unfortunately it is still not easy for individual investors to invest in Nigeria . Few ADRs, mutual funds and ETFs are available that have enough exposure to really take advantage of the opportunity.

Two ways to tap in to the Nigerian market are through the ETFs AFK and FRN.

The Market Vectors® Africa Index ETF (AFK):

"seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Dow Jones Africa Titans 50 IndexSM DJAFKT. DJAFKT is a rules-based, modified capitalization-weighted, float-adjusted index comprised of publicly traded companies that are headquartered in Africa or that generate the majority of their revenues in Africa ."

This is probably the best way to access the profit making opportunities in Nigeria . With nearly 19% of the assets invested in Nigeria , and hopefully an increase in the future, this is about as big a concentration as you'll find.

As of May 31, 2012, the holdings comprised:

Sector allocation is as follows, but a deeper examination of the fund's holdings is required to know what Nigerian sectors are being utilized.

As of May 31, 2012:

The other fund with a mentionable amount of exposure to Nigeria is FRN - the Guggenheim Frontier Market ETF, formerly Claymore/BNY Mellon Frontier Market ETF. This fund "seeks investment results that correspond generally to the performance of an equity index called Bank of New York Mellon New Frontier DR Index (the Frontier Index)."

As interesting as this fund may be, its current exposure to Nigeria is only 3.66%, far from enough to make a difference. The rest of the portfolio looks pretty good with its top exposure to Chile , but this illustrates some of the challenges faced by investors who can't easily make direct investments in many frontier market countries.

Ultimately Nigeria is a frontier market to watch that should be part of every portfolio. Hopefully we'll see more funds with greater exposure to it; maybe even a fund dedicated to Nigeria .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Source: http://community.nasdaq.com/News/2012-07/two-etfs-with-exposure-to-a-standout-frontier-market.aspx?storyid=155684#ixzz20o8F57u5