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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 Valoren 24785101

3YR Return Annualised
(View Total Returns)

Total Assets
(USD)

-5.82%
$94.8m

1YR Return
(View Total Returns)

Manager Tenure

-8.50%
6yrs

Information Ratio
(5 Years)

Tracking Error
(5 Years)

-0.26
4.95%

Inception Date 24-Jun-2014

Performance figures calculated in USD

Other Literature

31-Oct-2020 - Oliver Bell, Portfolio Manager ,
The macro fundamentals and demographics in many frontier markets today are favourable 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 population in the frontier universe is under 30 - a young workforce that should drive economic growth and develop into a solid middle class of consumers.
Oliver Bell
Oliver Bell, Co-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 COVID-19 and a plummeting oil price. The economies within the frontier markets universe are not immune to the global slowdown, which is now unavoidable; 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. Careful stock picking is therefore key, and the global market downturn has led to some particularly attractive valuations.

In frontier Asia, we remain positive on the macroeconomic backdrop in Vietnam. The government moved quickly to contain the spread of the virus, and indications are that the situation is mainly under control. The economy is currently forecast to avoid entering a recession this year. We maintain our positions in high-quality Vietnamese companies for the time being. In frontier emerging market Pakistan, we are keeping a close eye on macroeconomics and geopolitics, particularly given the country's twin deficits, rising inflation, and currency depreciation. However, the government has agreed to tough adjustments in order to secure a USD 6 billion bailout package from the IMF.

In Africa, sentiment in Nigeria had been weakening due to a lack of reform leadership from President Muhammadu Buhari, which we had hoped would materialize 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 volatility of the oil price 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. Frontier emerging market Egypt 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 affected by the volatility in the oil price on account of reduced demand and oversupply. In Kuwait, the death of the emir toward the end of the quarter may boost near-term volatility, but we believe that it is likely to have a limited impact in the medium term on the country's structural issues. The market is due to be reclassified to emerging markets status by the MSCI in November. We are selective here and will look to reduce positions in the runup 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 age 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 brings investment opportunities, and the long-term growth outlook of many corporations remains underpriced, we acknowledge that there will be individual winners and losers.

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 % -8.50% -5.82% 2.13% -0.33% -0.33%
Indicative Benchmark % -1.74% -1.49% 3.40% -0.78% -0.78%
Excess Return % -6.76% -4.33% -1.27% 0.45% 0.45%

Inception Date 24-Jun-2014

Manager Inception Date 24-Jun-2014

Indicative Benchmark: Linked Benchmark Net

Data as of  31-Oct-2020

Performance figures calculated in USD

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % -9.11% -5.37% 2.99% -0.35%
Indicative Benchmark % -2.42% -1.59% 3.83% -1.03%
Excess Return % -6.69% -3.78% -0.84% 0.68%

Inception Date 24-Jun-2014

Indicative Benchmark: Linked Benchmark Net

Data as of  30-Sep-2020

Performance figures calculated in USD

Recent Performance

  Month to DateData as of 27-Nov-2020 Quarter to DateData as of 27-Nov-2020 Year to DateData as of 27-Nov-2020 1 MonthData as of 31-Oct-2020 3 MonthsData as of 31-Oct-2020
Fund % 7.35% 7.46% -7.07% 0.10% 10.00%
Indicative Benchmark % 5.81% 7.42% -1.70% 1.52% 10.55%
Excess Return % 1.54% 0.04% -5.37% -1.42% -0.55%

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.

31-Oct-2020 - Oliver Bell, Portfolio Manager ,
Frontier equities once again posted modest gains over the month. Index heavyweight Vietnam continued to perform strongly; the country has managed the coronavirus pandemic well, with very few cases or deaths. Investors have also been encouraged that the economy is showing signs of recovery, including in domestic consumption and exports. In Kuwait, the upwards momentum provided by the upcoming inclusion of the country in MSCI’s emerging markets index in November was offset by the negative impact of a lower oil price. Within the portfolio, stock selection in Vietnam hindered relative performance, although this was partially offset by a beneficial overweight country position. The portfolio’s lack of exposure to Nigeria held back relative performance as this was the top-performing country within the benchmark index in October; the country’s foreign exchange market is effectively locked to foreign investors and we believe it would not be responsible to invest in the market at this time. By contrast, our position in an Egyptian digital payment business was particularly beneficial. The pandemic has created a surge in demand for electronic payment services and the company is a beneficiary of this trend, which was reflected in its latest results.

Holdings

Total
Holdings
52
Largest Holding National Bank of Kuwait 9.59% Was (30-Jun-2020) 9.44%
Other View Full Holdings Quarterly data as of 30-Sep-2020
Top 10 Holdings 54.61% View Top 10 Holdings Monthly data as of 31-Oct-2020

Largest Top Contributor^

National Bank of Kuwait
By 0.09%
% of fund 9.53%

Largest Top Detractor^

Label Vie
By -1.64%
% of fund 3.28%

^Absolute

Quarterly Data as of 30-Sep-2020

Top Purchase

Safaricom
3.51%
Was (30-Jun-2020) 1.31%

Top Sale

National Bank of Kuwait
9.52%
Was (30-Jun-2020) 9.44%

Quarterly Data as of 30-Sep-2020

30-Sep-2020 - Oliver Bell, Portfolio Manager ,

We identified compelling investment opportunities in Kenya and Egypt. We further reduced our overweight exposure to Sri Lanka and Saudi Arabia. On a sector basis, we made some changes within financials.

Kenya and Egypt

We identified a number of what we believe are compelling investment opportunities in some of the smaller frontier markets, such as Kenya and Egypt.

  • We continued building a position in Safaricom, Kenya's leading mobile operator. Service revenue growth remains positive, and the company is benefiting from growth in mobile data and the ongoing take-up of M-Pesa, a messaging, payments, and microfinancing app, across the country. We expect additional upside for the stock from the M-Pesa rollout into Africa (with Vodacom) and a special dividend in 2021.
  • We initiated a position in Egyptian digital payment business Fawry. Fawry's digital payments business in volume terms exceeds all the other competition combined. This part state-owned payments platform is core to over 26 million consumers wishing to pay for airtime and government bills through a large merchant network. While the core is still growing at a high growth rate, it is the new, higher-margin supply chain, banking services, and microfinance services that are accelerating bottom-line growth. After the pandemic is over, we expect digital payments to continue accelerating in Egypt.

Sri Lanka

Over the course of the second quarter of 2020, we reduced our overweight position in Sri Lanka, and in the third quarter, we continued this shift.

We sold down our position in Ceylon Cold Stores, a Sri Lankan consumer staples group that manufactures and sells carbonated soft drinks and frozen confectionery food products. The pandemic has been extremely damaging to Sri Lanka's economy. The country entered this crisis with an already very high debt-to-GDP ratio and significant costs of servicing that debt. While the company's long-term outlook remains promising in its underpenetrated segments (ice cream, beverages, and grocery retail), the pandemic is proving to be a bigger-than-expected headwind to its supposed defensive categories due to the severe lockdown in Sri Lanka.

Saudi Arabia

We have a modest overweight position in Saudi Arabia, and over the course of the quarter, we slightly reduced the extent of our exposure, largely due to stock-specific reasons. For example, we reduced our holding in hospital group Al Mouwasat Medical, in part due to profit taking as valuations began to look full. Over the near term, the challenging macroeconomic backdrop is expected to be a headwind, and opening costs of new hospitals are likely to weigh on profits. Looking further ahead, we believe the company is well positioned to continue gaining market share as expansion projects are completed.

Financials

As the third quarter began, the portfolio had a significant overweight in financials names, and over the course of the review period, we adjusted this exposure. For example, we increased the size of our existing holding in Bank of Georgia and, to a lesser extent, in Bangladesh-based BRAC Bank. These purchases were partially funded through reducing our exposure to a couple of Kuwait-based financials names.

  • We topped up our position in Bank of Georgia. The country has managed to keep the spread of COVID-19, the disease caused by the coronavirus, fairly contained, and government stimulus should help to support the economy through this challenging period. Looking further ahead, tourism could be a source of upside, after being written down completely in 2020. We believe that the stock's valuation offers upside potential and several factors may boost the stock. In the medium term, efficiency gains may result from the digital push the bank has pursued as a result of the pandemic.
  • We took some profits in National Bank of Kuwait ahead of Kuwait's upgrade to emerging markets status by MSCI. The bank remains a very strong and defensively positioned franchise for this environment; however, we are likely to see ROE contraction in 2020 and 2021. We see the longer-term potential for this high-quality franchise, which continues to gain market share.
  • We continued to further reduce our position in Kuwait Finance House, again partly due to the upcoming migration of Kuwait to the MSCI Emerging Markets index. Over the period, there was speculation that the planned merger with Bahrain's Ahli United Bank was back on track. This was previously delayed on account of government measures to contain the spread of the coronavirus. As with other banks in the region, the combination of the COVID-19 pandemic and lower oil prices is likely to weigh on the stock in the near term.

Materials

Although the portfolio retained an overall underweight position in materials over the course of the review period, we raised our exposure to Kaz Minerals, the copper producer that owns assets located in Kazakhstan. The company stands to benefit from a rising price of copper. This should be supported by both growing demand from China as manufacturing picks up and reduced production in Chile. The company's half-year results were broadly in line with expectations and key projects remain on track.

Sectors

Total
Sectors
11
Largest Sector Financials 52.49% Was (30-Sep-2020) 54.13%
Other View complete Sector Diversification

Monthly Data as of 31-Oct-2020

Indicative Benchmark: MSCI Frontier Market 10/40 Index Net

Top Contributor^

Consumer Discretionary
Net Contribution 0.88%
Sector
-0.05%
Selection 0.93%

Top Detractor^

Financials
Net Contribution -1.06%
Sector
0.13%
Selection
-1.19%

^Relative

Quarterly Data as of 30-Sep-2020

Largest Overweight

Consumer Discretionary
By9.86%
Fund 10.00%
Indicative Benchmark 0.14%

Largest Underweight

Communication Services
By-7.73%
Fund 7.68%
Indicative Benchmark 15.41%

Monthly Data as of 31-Oct-2020

31-Oct-2020 - Oliver Bell, Portfolio Manager ,
The portfolio retains a significant overweight with respect to financials and we made a number of adjustments within our sector holdings over the month. For example, we raised the size of our position in a Slovenian bank. In our recent meeting with the management team, we were reassured about Slovenia’s gradual economic normalization following coronavirus restrictions which led to a very weak second quarter of 2020. Beyond financials, the other main overweight sectors are information technology and consumer discretionary.

Regions

Total
Regions
3
Largest Region Middle East & Africa 45.57% Was (30-Sep-2020) 47.29%
Other View complete Region Diversification

Monthly Data as of 31-Oct-2020

Indicative Benchmark: MSCI Frontier Market 10/40 Index Net

Top Contributor^

Pacific ex Japan
Net Contribution 2.15%
Region
0.18%
Selection 1.97%

Top Detractor^

EM EMEA
Net Contribution -2.20%
Region
0.04%
Selection
-2.24%

^Relative

Quarterly Data as of 30-Sep-2020

Largest Overweight

Pacific Ex Japan
By15.72%
Fund 40.15%
Indicative Benchmark 24.43%

Largest Underweight

Middle East & Africa
By-17.24%
Fund 45.57%
Indicative Benchmark 62.81%

Monthly Data as of 31-Oct-2020

Countries

Total
Countries
20
Largest Country Vietnam 31.15% Was (30-Sep-2020) 27.65%
Other View complete Country Diversification

Monthly Data as of 31-Oct-2020

Indicative Benchmark: MSCI Frontier Market 10/40 Index Net

Top Contributor^

Vietnam
Net Contribution 2.03%
Country
0.01%
Selection 2.01%

Top Detractor^

Bahrain
Net Contribution -0.98%
Country
-0.98%
Selection
0.00%

^Relative

Quarterly Data as of 30-Sep-2020

Largest Overweight

Vietnam
By10.05%
Fund 31.15%
Indicative Benchmark 21.10%

Largest Underweight

Nigeria
By-7.04%
Fund 0.00%
Indicative Benchmark 7.04%

Monthly Data as of 31-Oct-2020

31-Oct-2020 - Oliver Bell, Portfolio Manager ,
We continued to reduce the portfolio’s exposure to Kuwait, ahead of the country’s upgrade to emerging markets status by MSCI in November. Among the moves, we booked profits in a large Kuwait-based bank; while it remains a very strong and defensively positioned franchise for this environment, there will likely be return on equity (ROE) contraction in 2020 and 2021. We also further reduced our holding in an Islamic bank as we believe the combination of the coronavirus pandemic and lower oil prices is likely to weigh on the stock in the near term.

Currency

Total
Currencies
N/A

Team (As of 01-Oct-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
    9
  • Years investment
    experience
    23
Johannes Loefstrand

Johannes Loefstrand is the Co-Portfolio Manager on the Frontier Markets Fund in the Equity Division of T. Rowe Price. He is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price International Ltd.

Johannes’s investment experience began in 2012 and he has been with T. Rowe Price since 2015, beginning in the Emerging Markets Equity Division. Prior to this, he was an investment analyst at Arisaig Partners in Singapore and in Cape Town.

Johannes earned a master of laws degree from the London School of Economics and a bachelor of laws degree from the University of Groningen, Netherlands.

  • Fund manager
    since
    2020
  • Years at
    T. Rowe Price
    5
  • Years investment
    experience
    0

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.