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SICAV

Frontier Markets Equity Fund

Seeking to identify long-term market leaders in countries on the cusp of rapid development.

ISIN LU1079765662 Bloomberg TRPFMEI:LX

3YR Return Annualised
(View Total Returns)

Total Assets
(USD)

-7.56%
$117.9m

1YR Return
(View Total Returns)

Manager Tenure

-20.19%
5yrs

Information Ratio
(5 Years)

Tracking Error
(5 Years)

-0.15
5.13%

Inception Date 24-Jun-2014

Performance figures calculated in USD

Other Literature

30-Apr-2020 - Oliver Bell, Portfolio Manager,
Frontier markets, along with the rest of the world, have been hit hard by the double impact of the global spread of the coronavirus and a plummeting oil price. The outlook has become increasingly uncertain. However, we continue to focus on the long-term fundamentals of our individual companies, their positioning, and the strength of their balance sheets to withstand these difficult times. Careful stock picking remains key, and the global market downturn has led to some particularly attractive valuations.
Oliver Bell
Oliver Bell, Portfolio Manager

Oliver Bell is a vice president of T. Rowe Price Group, Inc., associate head of Equity EMEA and the lead portfolio manager and chairman of the Investment Advisory Committee for the T. Rowe Price Middle East & Africa Equity Strategy and the Frontier Markets Equity Strategy. He is a member of the International Equity Steering Committee and a Board member of T. Rowe Price (Luxembourg) Management S.a.r.l.

Click for Manager Outlook
 

Strategy

Manager's Outlook

Frontier markets, along with the rest of the world, have been hit hard by the double impact of the global spread of the coronavirus and a plummeting price of oil. The outlook has become increasingly uncertain. However, we continue to focus on the long-term fundamentals of our individual companies, their positioning, and the strength of their balance sheets to withstand these difficult times.

Frontier markets are a heterogeneous group of countries, and correlations between them are generally low. The economies within our universe are at varying stages of development and many individual stories are at play in terms of macroeconomic environments, geopolitics, and the key sources of growth. Specific market considerations also apply, such as currency issues and the level of efficiency, liquidity, and regulation. Therefore, careful stock picking is key, and the global market downturn has led to some particularly attractive valuations.

In frontier Asia, fears of a global slowdown and its impact on trade are increasing as more nations move into or extend lockdown measures. We remain positive on the macroeconomic backdrop in Vietnam. The government moved quickly to contain the spread of the coronavirus and indications are that the situation is mainly under control. We maintain our positions in high-quality Vietnamese companies for the time being. In Pakistan, macroeconomics and geopolitics are a concern, given twin deficits, rising inflation, and currency depreciation. However, Prime Minister Imran Khan has brought attention to necessary economic reforms and has been tackling tax evasion since taking office in August 2018. The government has agreed to tough adjustments in order to secure a USD 6 billion bailout package from the International Monetary Fund.

In Africa, sentiment in Nigeria had been weakening due to a lack of reform leadership from President Muhammadu Buhari, which had been hoped for after his win of a second term in office. Economic growth has been struggling to outpace population growth. More recently, this situation has been exacerbated by the decline in the price of oil, and increasing concerns that capital controls may be introduced. In Kenya, the removal of the interest rate cap late last year was a positive catalyst for the market. We are able to find opportunities here, particularly given the recent market dislocation. Egypt, meanwhile, completed an IMF-backed reform agenda and loan program in 2019. If the political situation remains stable, this should drive a material improvement to the country's economic backdrop. While challenges still exist, including those to the tourism sector during the current crisis, we are starting to see signs of easing inflation, an improving budget deficit, and currency stability.

In the Middle East, oil-exporting nations have been heavily affected by the plummeting price of oil on account of reduced demand and oversupply. In Kuwait, structural domestic improvement and a government push on infrastructure projects had been key positives coming into 2020. The market's reclassification to emerging markets status by MSCI has recently been pushed back to November 2020 due to the global spread of the coronavirus. We are selective here and will look to reduce positions in the run up to the reclassification.

We believe frontier markets have a place in an investor's global portfolio. The macro fundamentals and demographics in many frontier markets today are favorable and, in some cases, resemble those of emerging countries approximately 15 to 20 years ago. These economies have the potential to grow much faster than those in the developed and emerging markets universes. Nearly 60% of the aggregate population in the frontier universe is below the age of 30, a young workforce that should drive economic growth and develop into a solid middle class of consumers in many countries. Of course, conditions and investment opportunities will vary widely among frontier markets, even those within the same region. While the current global crisis will produce individual winners and losers, we are focused on finding investment opportunities where the long-term growth outlook of corporations remains underpriced.

Investment Objective

To increase the value of its shares, over the long term, through growth in the value of its investments. The fund invests mainly in a diversified portfolio of stocks of frontier markets companies.

Investment Approach

  • Invest across the entire frontier investment universe, including countries outside the MSCI Frontier Markets Index.
  • Rigorous, risk-aware approach to identify quality growing companies trading at attractive valuations.
  • Employ fundamental analysis with a focus on returns, balance sheet structure, management team and corporate governance.
  • Disciplined approach to valuation. Verify relative valuation appeal versus peers and history.
  • Consider macroeconomic and political factors to temper bottom-up enthusiasm.

Portfolio Construction

  • Number of holdings: typically 60-80 stocks
  • Individual position sizes typically range from 0.5%-10%
  • Country Ranges:
    • Index countries: Unconstrained
    • Non-index countries: Constrained – 15% limit in any one country.
  • Reserves are typically less than 5%
  • Expected Turnover range: 20-40%

Performance (Class I)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Since Manager Inception
Annualised
Fund % -20.19% -7.56% -2.99% -2.90% -2.90%
Indicative Benchmark % -13.20% -2.40% -2.20% -3.61% -3.61%
Excess Return % -6.99% -5.16% -0.79% 0.71% 0.71%

Inception Date 24-Jun-2014

Manager Inception Date 24-Jun-2014

Indicative Benchmark: Linked Benchmark Net

Data as of  30-Apr-2020

Performance figures calculated in USD

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % -25.57% -8.53% -3.69% -4.15%
Indicative Benchmark % -18.77% -4.22% -2.81% -4.79%
Excess Return % -6.80% -4.31% -0.88% 0.64%

Inception Date 24-Jun-2014

Indicative Benchmark: Linked Benchmark Net

Data as of  31-Mar-2020

Performance figures calculated in USD

Recent Performance

  Month to DateData as of 01-Jun-2020 Quarter to DateData as of 01-Jun-2020 Year to DateData as of 01-Jun-2020 1 MonthData as of 30-Apr-2020 3 MonthsData as of 30-Apr-2020
Fund % 0.00% 13.67% -21.31% 7.54% -24.96%
Indicative Benchmark % 0.35% 13.71% -16.34% 7.04% -21.38%
Excess Return % -0.35% -0.04% -4.97% 0.50% -3.58%

Inception Date 24-Jun-2014

Indicative Benchmark: Linked Benchmark Net

Indicative Benchmark: Linked Benchmark Net

Performance figures calculated in USD

Past performance is not a reliable indicator of future performance.  Source for fund performance: T. Rowe Price. Fund performance is calculated using the official NAV with dividends reinvested, if any. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested. It will be affected by changes in the exchange rate between the base currency of the fund and the subscription currency, if different. Sales charges (up to a maximum of 5% for the A Class), taxes and other locally applied costs have not been deducted and if applicable, they will reduce the performance figures. 

Where the base currency of the fund differs from the share class currency, exchange rate movements may affect returns.

Index returns shown with reinvestment of dividends after the deduction of withholding taxes. 

Effective 1 July 2018, the "net" version of the indicative benchmark replaced the "gross" version of the indicative benchmark. The "net" version of the indicative benchmark assumes the reinvestment of dividends after the deduction of withholding taxes applicable to the country where the dividend is paid; as such, the returns of the new benchmark are more representative of the returns experienced by investors in foreign issuers. Historical benchmark performance has been restated accordingly. 

Effective 1 January 2020, the benchmark for the sub-fund changed to MSCI Frontier Markets 10/40 Index Net. Prior to this change, the benchmark was MSCI Frontier Markets Index Net. Historical benchmark representations have not been restated.

30-Apr-2020 - Oliver Bell, Portfolio Manager,
Frontier markets rebounded in April, but lagged their developed and emerging market peers. While the coronavirus continued to spread globally, some countries began to take steps towards reopening their economies amid falling daily new infection rates. Markets were buoyed by the significant stimulus measures announced by major governments and central banks to counter the economic disruption caused by the pandemic. Within the portfolio, stock selection and to a lesser extent, an overweight in Vietnam had the most positive impact. Retailer Mobile World Investment was the top contributing stock in the country and the portfolio overall, benefitting from signs that the Vietnamese economy is reopening. FPT also added value; the Vietnamese information technology company reported robust first-quarter results which showed strong revenue growth in its software outsourcing operations in the Japanese market. Conversely, Rwandan Bank of Kigali had the most negative impact on the portfolio. Its earnings are likely to be adversely affected by authorities’ removal of mobile transaction fees and the coronavirus-related economic slowdown. UK-listed Helios Towers also dragged. The telecommunication towers company announced it was putting on hold its expansion plans in Africa as a result of the coronavirus pandemic. It reported a strong set of full-year results, however.

Holdings

Total
Holdings
59
Largest Holding Kuwait Finance House KSCP 9.39% Was (31-Dec-2019) 9.61%
Other View Full Holdings Quarterly data as of 31-Mar-2020
Top 10 Holdings 48.25% View Top 10 Holdings Monthly data as of 30-Apr-2020

Largest Top Contributor^

Safaricom
By 0.34%
% of fund 1.10%

Largest Top Detractor^

Kuwait Finance House KSCP
By -0.37%
% of fund 9.51%

^Absolute

Quarterly Data as of 31-Mar-2020

Top Purchase

Label Vie
4.15%
Was (31-Dec-2019) 2.25%

Top Sale

Boubyan Bank
0.63%
Was (31-Dec-2019) 3.46%

Quarterly Data as of 31-Mar-2020

31-Mar-2020 - Oliver Bell, Portfolio Manager,

Nigeria

We exited positions in Nigeria, selling out of Guaranty Trust Bank, Nestle Foods Nigeria, and FBN Holdings. Persistently low oil prices are likely to present significant challenges to the country's oil-exporting economy. Growth, fiscal, and debt dynamics are deteriorating fairly rapidly, which is especially challenging for a country with a young and growing population. The managed exchange rate is an impediment to releasing these pressures, and we have seen the re-emergence of a black market current rate with a widening spread. Implied yields are pricing in a 10% devaluation in the naira; however, if oil averages USD 40 per barrel (or lower) for an extended period, the currency will have to move by more than this. Capital controls could also be on the table.

Kuwait

We had been reducing our exposure to Kuwait to take profits ahead of the country's planned inclusion by MSCI in its Emerging Markets Index in June 2020. Shortly after quarter-end, MSCI made the decision to push back Kuwait's inclusion to November 2020, due to the global spread of the coronavirus. We are selective here and will continue to look to reduce positions in the run up to the eventual reclassification.

Over the quarter, we eliminated our position in Agility, which engages in the provision of logistics and warehousing services. The company is likely to suffer amid the global spread of the coronavirus, with global cargo capacity dropping steeply as nations implement more restrictive lockdown measures.

We also scaled back our holdings in Kuwaiti financials Boubyan Bank, Kuwait Finance House, and National Bank of Kuwait. Their performance had been buoyed in part by Kuwait's impending inclusion in the MSCI Emerging Markets Index and we sought to lock in profits. In the short term, however, the combination of the spread of the coronavirus and lower oil prices are likely to weigh on the stocks.

Kenya

We used market dislocation as an opportunity to initiate exposure to the Kenyan market. The removal of the interest rate cap was a catalyst for the market late last year, and while we had missed out on the market rally at the time, we took the chance to invest now that market fundamentals are improving.

We initiated a position in East African Breweries, the Kenyan unit of drinks giant Diageo, which sells locally brewed and branded beer, as well as imported spirits from the Diageo portfolio. The company stands to benefit from an improving macroeconomic backdrop in Kenya, with the country accounting for more than 70% of its sales. The company's value-led strategy in mainstream spirits and beer has been paying off in Kenya; however, this improvement has not been reflected in the share price.

We also built a position in Equity Bank, which is Kenya's second-largest bank by assets and has a 10% share in loans. The group also has subsidiaries in Uganda, South Sudan, Rwanda, Tanzania, and the Democratic Republic of Congo. The bank looks to benefit from the removal of interest rate caps in Kenya. While the coronavirus outbreak poses a near-term risk to growth, we believe Equity Bank's balance sheet strength leaves it well placed to weather the crisis.

Sectors

Total
Sectors
11
Largest Sector Financials 51.25% Was (31-Mar-2020) 52.03%
Other View complete Sector Diversification

Monthly Data as of 30-Apr-2020

Indicative Benchmark: MSCI Frontier Market 10/40 Index Net

Top Contributor^

Consumer Staples
Net Contribution 0.18%
Sector
-0.13%
Selection 0.31%

Top Detractor^

Financials
Net Contribution -1.81%
Sector
-0.11%
Selection
-1.70%

^Relative

Quarterly Data as of 31-Mar-2020

Largest Overweight

Consumer Discretionary
By7.79%
Fund 7.93%
Indicative Benchmark 0.14%

Largest Underweight

Communication Services
By-9.69%
Fund 6.99%
Indicative Benchmark 16.69%

Monthly Data as of 30-Apr-2020

30-Apr-2020 - Oliver Bell, Portfolio Manager,
In communication services, we added to our holding in a leading Kenyan mobile operator. We believe the company has a resilient business model and healthy balance sheet. In addition to voice communications, it operates a funds transfer business which is transitioning into lending, and the app that it has developed to facilitate these exchanges is being used by an increasing share of the Kenyan population. We believe the company is well positioned to expand its existing services in African markets.

Regions

Total
Regions
4
Largest Region Middle East & Africa 45.59% Was (31-Mar-2020) 45.50%
Other View complete Region Diversification

Monthly Data as of 30-Apr-2020

Indicative Benchmark: MSCI Frontier Market 10/40 Index Net

Top Contributor

N/A

Top Detractor^

EM EMEA
Net Contribution -3.40%
Region
-0.21%
Selection
-3.18%

^Relative

Quarterly Data as of 31-Mar-2020

Largest Overweight

Pacific Ex Japan
By17.23%
Fund 39.57%
Indicative Benchmark 22.34%

Largest Underweight

Middle East & Africa
By-18.98%
Fund 45.59%
Indicative Benchmark 64.58%

Monthly Data as of 30-Apr-2020

Countries

Total
Countries
21
Largest Country Vietnam 26.68% Was (31-Mar-2020) 23.52%
Other View complete Country Diversification

Monthly Data as of 30-Apr-2020

Indicative Benchmark: MSCI Frontier Market 10/40 Index Net

Top Contributor^

Saudi Arabia
Net Contribution 0.28%
Country
0.28%
Selection 0.00%

Top Detractor^

Vietnam
Net Contribution -1.89%
Country
-0.48%
Selection
-1.42%

^Relative

Quarterly Data as of 31-Mar-2020

Largest Overweight

Vietnam
By7.53%
Fund 26.68%
Indicative Benchmark 19.15%

Largest Underweight

Bahrain
By-6.00%
Fund 0.00%
Indicative Benchmark 6.00%

Monthly Data as of 30-Apr-2020

30-Apr-2020 - Oliver Bell, Portfolio Manager,
We reduced our exposure to Egypt, selling our position in Edita Food Industries. The snack food company had an exceptionally weak fourth quarter of 2019 on account of slowing demand and stronger competition. Its most profitable segment, cakes, has lost market share. We also scaled back our holding in a leading Egyptian private bank. Its loan growth guidance looks difficult to achieve, in our view, amid current conditions and, as a result of disruption in supply chains, we should see weaker growth in working capital financing. Capital expenditures are also likely to be delayed.

Team (As of 21-May-2020)

Oliver Bell

Oliver Bell is a vice president of T. Rowe Price Group, Inc., associate head of Equity EMEA and the lead portfolio manager and chairman of the Investment Advisory Committee for the T. Rowe Price Middle East & Africa Equity Strategy and the Frontier Markets Equity Strategy. He is a member of the International Equity Steering Committee and a Board member of T. Rowe Price (Luxembourg) Management S.a.r.l.

Mr. Bell has 21 years of investment experience, seven of which have been with T. Rowe Price. Prior to joining the firm in 2011, Mr. Bell was head of emerging markets equities research at Pictet Asset Management (the institutional asset management arm of Pictet & Cie, the largest private bank in Switzerland), where his responsibilities included managing several funds, as well as a team of analysts. During his time at Pictet, Mr. Bell was directly responsible for managing investments in the emerging Europe, Middle East and Africa region as part of the global emerging markets and the standalone Middle East and Africa portfolios. Mr. Bell also managed the Global Emerging Markets High Dividend Yield Equity Strategy.

Mr. Bell has earned a bachelor of science degree in chemistry from Exeter University and also has earned the Investment Management Certificate.

  • Fund manager
    since
    2014
  • Years at
    T. Rowe Price
    8
  • Years investment
    experience
    22
Kanwal Masood

Kanwal Masood is a portfolio specialist in the Equity Division at T. Rowe Price, covering the Middle East and Africa Equity and Emerging Europe Equity Strategies. She is an associate vice president of T. Rowe Price International Ltd.

Ms. Masood has 10 years of investment experience, all of which have been with T. Rowe Price. She joined the firm in 2007, covering the global and regional emerging market equity strategies as a portfolio analyst. Prior to joining T. Rowe Price, she was a product specialist at the London Stock Exchange.

Ms. Masood earned a B.Sc. with honours in mathematics and computer science from King's College London.

  • Years at
    T. Rowe Price
    13
  • Years investment
    experience
    13

Fee Schedule

Share Class Minimum Initial Investment and Holding Amount (USD) Minimum Subsequent Investment (USD) Minimum Redemption Amount (USD) Sales Charge (up to) Investment Management Fee (up to) Ongoing Charges
Class A $1,000 $100 $100 5.00% 200 basis points 2.17%
Class I $2,500,000 $100,000 $0 0.00% 110 basis points 1.20%
Class Q $1,000 $100 $100 0.00% 110 basis points 1.27%
Class S $10,000,000 $0 $0 0.00% 0 basis points 0.10%

Please note that the Ongoing Charges figure is inclusive of the Investment Management Fee and is charged per annum.

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GIPS® Information

T. Rowe Price ("TRP") claims compliance with the Global Investment Performance Standards (GIPS®). TRP has been independently verified for the twenty one- year period ended June 30, 2017 by KPMG LLP. The verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation.

TRP is a U.S. investment management firm with various investment advisers registered with the U.S. Securities and Exchange Commission, the U.K. Financial Conduct Authority, and other regulatory bodies in various countries and holds itself out as such to potential clients for GIPS purposes. TRP further defines itself under GIPS as a discretionary investment manager providing services primarily to institutional clients with regard to various mandates, which include U.S, international, and global strategies but excluding the services of the Private Asset Management group.

A complete list and description of all of the Firm's composites and/or a presentation that adheres to the GIPS® standards are available upon request. Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request

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