MSCI Barra has responded to the new-found interest in frontier markets with the launch of a dedicated frontier markets index.

This will compete with the longer established S&P/IFC frontier markets index. Historically, the IFC had developed a frontier markets composite of 22 countries, which it then sold to S&P and the composite is now known as the S&P/IFC Frontier Markets Composite.

Kemal Ahmed, the founder and managing member of Old Square Capital, finds that the composition was relatively arbitrary and S&P has not developed the index significantly.

"While it is not strictly speaking an investible index it is interesting to note the substantial increase in market capitalisation over the last five years," he says. "The bulk of the index's market cap of $67bn [at end September] is in eastern Europe."

In contrast, Ahmed continues, Old Square's universe of frontier markets covers 44 countries and includes the Gulf region where Saudi Arabia's market cap alone is around $370bn.

In developing their new frontier markets index, David Brierwood, chief operating officer, says MSCI Barra adopted an investor-focused approach and believes the construction represents "a trade-off between liquidity and size in terms of the novelty value of country and sectors included". The key factor they considered, was investibility.

"We extended our global indices methodology with slight tweaks to parameters for frontier markets such as free float and trading activity and required at least two companies in any market," says Brierwood.

One of the key attractions he sees of the index is that there is is daily pricing and a continuity of methodology with the global indices enabling the complete global universe to be covered ranging from frontier, to emerging and then to developed.