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T. Rowe Price ("TRP") claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. T. Rowe Price has been independently verified for the twenty four-year period ended June 30, 2020, by KPMG LLP. The verification report is available upon request. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm’s policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis. Verification does not provide assurance on the accuracy of any specific performance report.

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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)

5.75%
$107.0m

1YR Return
(View Total Returns)

Manager Tenure

52.70%
<1yr

Information Ratio
(5 Years)

Tracking Error
(5 Years)

0.08
6.04%

Inception Date 24-Jun-2014

Performance figures calculated in USD

31-May-2021 - Johannes Loefstrand, Portfolio Manager ,
Frontier countries have had wide-ranging experiences of the pandemic in terms of both the health impact, the associated restrictions on movement, and government stimulus measures. We continue to focus on the long-term fundamentals of individual companies, their positioning, and the strength of their balance sheets to navigate these difficult times. We are optimistic about the positive effects that the rollout of vaccine programmes will have on global economies including those in frontier markets.
Johannes Loefstrand
Johannes Loefstrand, Portfolio Manager

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.

Click for Manager Outlook
 

Strategy

Manager's Outlook

The countries within the frontier universe have had wide-ranging experiences of the pandemic - in terms of both the health impact, the associated restrictions on movement, and government stimulus measures. We continue to focus on the long-term fundamentals of individual companies, their positioning, and the strength of their balance sheets to navigate these difficult times. We are also optimistic about the positive effects that the roll-out of vaccine programs will have on global economies including those in frontier markets.

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 was therefore among the first countries to begin opening up the economy. In 2020, Vietnam's economy continued to grow despite the pandemic weighing on global demand. We maintain our positions in high-quality Vietnamese companies and find opportunities across different sectors of the market. We are also encouraged by developments in Bangladesh. The economy is bouncing back strongly, and we are able to find companies with favorable valuations. 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 International Monetary Fund (IMF).

In Africa, sentiment in Nigeria had been weakening due to a lack of reform leadership from President 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 oil price volatility and increasing concerns over capital controls. In Kenya, the removal of an 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.

We believe that the markets in Frontier Europe will benefit from the European Union Recovery Fund, which will help to reduce macroeconomic risk. Valuations are generally reasonable, and we find selective opportunities here, particularly in the financials space.

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.
  • Environmental, social and governance ("ESG") factors with particular focus on those considered most likely to have a material impact on the performance of the holdings or potential holdings in the funds’ portfolio are assessed. These ESG factors, which are incorporated into the investment process alongside financials, valuation, macro-economics and other factors, are components of the investment decision. Consequently, ESG factors are not the sole driver of an investment decision but are instead one of several important inputs considered during investment analysis.

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
Fund % 52.70% 5.75% 8.81% 4.52% 21.99%
Indicative Benchmark % 38.09% 7.11% 8.31% 2.40% 11.94%
Excess Return % 14.61% -1.36% 0.50% 2.12% 10.05%

Inception Date 24-Jun-2014

Manager Inception Date 01-Jan-2021

Indicative Benchmark: Linked Benchmark Net

Data as of 31-May-2021

Performance figures calculated in USD

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 53.51% -2.73% 7.28% 2.76%
Indicative Benchmark % 40.28% -1.06% 6.83% 0.82%
Excess Return % 13.23% -1.67% 0.45% 1.94%

Inception Date 24-Jun-2014

Indicative Benchmark: Linked Benchmark Net

Data as of 31-Mar-2021

Performance figures calculated in USD

Recent Performance

  Month to DateData as of 15-Jun-2021 Quarter to DateData as of 15-Jun-2021 Year to DateData as of 15-Jun-2021 1 MonthData as of 31-May-2021 3 MonthsData as of 31-May-2021
Fund % 1.40% 14.64% 23.70% 7.26% 12.97%
Indicative Benchmark % 2.36% 14.17% 14.58% 4.25% 11.81%
Excess Return % -0.96% 0.47% 9.12% 3.01% 1.16%

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-May-2021 - Johannes Loefstrand, Portfolio Manager ,
Frontier equities posted robust returns in May, once again outperforming developed markets as well as their emerging markets peers. At a global level, sentiment was buoyed by the maintenance of supportive monetary policy by major central banks, an acceleration in the rollout of vaccination programmes, stronger-than-expected corporate earnings results in several key regions, and broadly supportive economic data. Within frontier equities, index heavyweight Vietnam continued to make strong gains, driven in large part by increased participation by domestic retail investors shifting their assets from savings accounts and other asset classes. The Kenyan market rose in May, due in large part to solid performance from two large banking groups. In the portfolio, stock selection in Bangladesh, Vietnam, and Slovenia made significant contributions to relative performance, while our lack of exposure to Nigeria also boosted returns. Conversely, performance was held back by our off-benchmark positions in Egypt and having no holdings in Jordan. Within Bangladesh, our sizeable position in BRAC Bank was beneficial; its shares rose sharply alongside many of its global banking peers on the prospect of an economic recovery.

Holdings

Total
Holdings
49
Largest Holding FPT 7.41% Was (31-Dec-2020) 5.41%
Other View Full Holdings Quarterly data as of  31-Mar-2021
Top 10 Holdings 49.46% View Top 10 Holdings Monthly data as of  31-May-2021

Largest Top Contributor^

FPT
By 0.01%
% of fund 7.40%

Largest Top Detractor^

Vietnam Dairy Products
By -0.85%
% of fund 4.81%

^Absolute

Quarterly Data as of 31-Mar-2021

Top Purchase

Saigon Beer Alcohol Beverage (N)
2.14%
Was (31-Dec-2020) 0%

Top Sale

Vincom Retail JSC
0.48%
Was (31-Dec-2020) 2.24%

Quarterly Data as of 31-Mar-2021

31-Mar-2021 - Johannes Loefstrand, Portfolio Manager ,

Over the course of the first quarter, we added to our exposure in Bangladesh, Egypt, and the Philippines. In contrast, we reduced our position in Morocco and eliminated our exposure to the UAE.

Vietnam

Vietnam remains the portfolio's largest country position, on both an absolute and relative basis. This is our highest conviction market, with a huge investment opportunity set of over 1,600 listed stocks. The country has handled the pandemic incredibly well and has a dynamic economy, which has been successful in taking manufacturing market share from China in recent years.�

  • We initiated a holding in Saigon Beer Alcohol Beverage (Sabeco) a leading Vietnamese beer producer. We believe that the Vietnamese beer industry is at a cyclical trough. As the industry recovers from the impacts of the pandemic and new laws enforcing harsher punishments for anyone found driving under the influence, we expect the company to improve its market share in both on-premise and modern retail segments. We also anticipate improved efficiency from the company under its new management. A reduction in government ownership in coming years may also be a positive catalyst for improved efficiency, in our view, as well as improving the liquidity of the stock.
  • We reduced our position in Vincom Retail, Vietnam's largest retail developer, owner and operator. The group has an expansive nationwide network of retail malls. We chose to take some profit from our holding as the share price had a strong run and began to approach its fair value. Vietnam's retail real estate sector remains resilient despite the pandemic, with the country experiencing a stronger recovery in traffic rates versus its regional peers.
  • We trimmed our holding in Military Commercial Bank, primarily due to profit taking and reduction of concentration following strong outperformance. The bank delivered strong third-quarter results, is well-positioned to weather the disruption caused by the pandemic and continues to remain profitable. This remains one of the fund's largest positions and we maintain conviction on the stock.

Bangladesh

We raised our exposure to Bangladesh over the quarter. We believe the country's economy is bouncing back strongly and valuations are generally favorable.

  • We added to our holding in BRAC Bank, one of the fastest growing banks in the country. We believe that the bank is well-positioned to benefit from an improving macroeconomic environment in the country. Furthermore, the bank's subsidiary bKash is the country's dominant mobile money system. We believe that there are strong structural tailwinds for mobile banking in Bangladesh due to the significant proportion of the population that is currently unbanked, and the widespread use of mobile telephones. We expect this subsidiary to be a key driver of returns in the coming years.

Egypt

We continued to build up our positions in a number of the smaller frontier markets, such as Egypt. Our overweight position in this market is largely due to bottom-up, stock-specific ideas. Our key positions include digital payments company Fawry and diagnostics specialist IDH.

  • We added to our position in Cairo Investment & Real Estate, Egypt's largest private education provider, which owns and operates schools and one university. The company continues to expand, adding further faculties to the university and opening new schools. Egypt's young and growing population creates a wide student base which is likely to fuel sustainable long-term demand for education. The company is likely to be a key beneficiary of the widening demand-supply gap in education in Egypt. Recent company results were in line with expectations, despite lockdowns and school and university closures.

Philippines

We identified a new investment opportunity in the Philippines, raising the extent of our off-benchmark exposure to this market.

  • We initiated a holding in Universal Robina, the Philippines-based snack and beverage manufacturer, which also has exposure to other ASEAN markets. We are encouraged by improving margins and market share gains since the current CEO came onboard. The company has executed well in the tough market environment of 2020 and delivered robust profits. In our view the business is well-positioned to benefit from an improving macroeconomic backdrop. The share price has struggled recently amid rising coronavirus cases in the Philippines. However, we believe that the business' longer-term thesis remains intact and found an attractive entry point to begin building a position.

Morocco

Over the course of the review period, we reduced our exposure to Morocco, trimming the size of our positions in a couple of names. Morocco has undergone a difficult coronavirus crisis and we believe that the country will be a laggard in the normalization of economic activities post-pandemic.

  • We reduced our holding in Attijariwafa Bank, the country's largest bank. The company reported 2020 earnings that were negatively affected by the pandemic but included stable margins and an improvement in cost efficiency. We believe that the share price is approaching its fair value and we are also increasingly cautious on the macroeconomic outlook in Morocco. The tourism dependent economy continues to be challenged by the pandemic. We trimmed our holding and redeployed proceeds to higher conviction ideas.

UAE

By the end of the review period, we moved to a zero-weight in the UAE after we eliminated our only holding in the country.

  • We sold out of our position in Network International, the digital payment solutions provider, which serves merchants and financial institutions in Africa and the Middle East. The stock has been a strong contributor to performance in recent months, however we see more compelling investment opportunities elsewhere in companies that have more of an exposure to frontier markets dynamics.

Sectors

Total
Sectors
10
Largest Sector Financials 32.66% Was (30-Apr-2021) 32.00%
Other View complete Sector Diversification

Monthly Data as of 31-May-2021

Indicative Benchmark: MSCI Frontier Market 10/40 Index Net

Top Contributor^

Information Technology
Net Contribution 3.09%
Sector
3.09%
Selection 0.00%

Top Detractor^

Consumer Staples
Net Contribution -0.46%
Sector
-0.01%
Selection
-0.46%

^Relative

Quarterly Data as of 31-Mar-2021

Largest Overweight

Information Technology
By14.52%
Fund 14.52%
Indicative Benchmark 0.00%

Largest Underweight

Materials
By-9.70%
Fund 0.00%
Indicative Benchmark 9.70%

Monthly Data as of 31-May-2021

31-May-2021 - Johannes Loefstrand, Portfolio Manager ,
The portfolio’s main sector overweight positions are in information technology (IT) and consumer discretionary while the most significant underweights remain materials, real estate, communication services, and health care. Within the IT sector, we booked profits in a Vietnam-based IT group, managing the size of our position following strong share price performance. Its shares had risen sharply following the release of results which showed good growth in both its domestic and global outsourcing operations, as well as improved profitability in its telecommunications business.

Regions

Total
Regions
5
Largest Region Pacific Ex Japan 45.68% Was (30-Apr-2021) 47.28%
Other View complete Region Diversification

Monthly Data as of 31-May-2021

Indicative Benchmark: MSCI Frontier Market 10/40 Index Net

Top Contributor^

EM EMEA
Net Contribution 4.07%
Region
0.39%
Selection 3.68%

Top Detractor

N/A

^Relative

Quarterly Data as of 31-Mar-2021

Largest Overweight

Pacific Ex Japan
By12.88%
Fund 45.68%
Indicative Benchmark 32.80%

Largest Underweight

Middle East & Africa
By-19.47%
Fund 18.37%
Indicative Benchmark 37.84%

Monthly Data as of 31-May-2021

Countries

Total
Countries
18
Largest Country Vietnam 34.19% Was (30-Apr-2021) 36.51%
Other View complete Country Diversification

Monthly Data as of 31-May-2021

Indicative Benchmark: MSCI Frontier Market 10/40 Index Net

Top Contributor^

Vietnam
Net Contribution 3.53%
Country
0.54%
Selection 3.00%

Top Detractor^

Oman
Net Contribution -0.36%
Country
-0.36%
Selection
0.00%