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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 LU1079763535 Valoren 24785088

3YR Return Annualised
(View Total Returns)

Total Assets
(USD)

9.95%
$107.7m

1YR Return
(View Total Returns)

Manager Tenure

48.40%
1yr

Information Ratio
(5 Years)

Tracking Error
(5 Years)

-0.28
5.77%

Inception Date 24-Jun-2014

Performance figures calculated in USD

31-Aug-2021 - Johannes Loefstrand, Portfolio Manager ,
Frontier countries have had wide-ranging experiences of the pandemic – in terms of the health impact and the associated restrictions on movement, as well as 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 withstand these difficult times. We are optimistic about the positive effects that the roll-out of vaccine programmes will have on global, including frontier, economies.
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 and the associated restrictions on movement, as well as 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 withstand 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.

As evidenced this quarter, 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 has hitherto demonstrated effective containment of the spread of the virus, primarily through strict local lockdowns. This has limited the economic impact and meant that Vietnam was among the first countries to begin reopening. In 2020, Vietnam's economy continued to grow at an enviable rate 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 braced to bounce back in coming quarters, 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 $6 billion bailout package from the IMF.

In Africa, sentiment in Nigeria had been weak due to a lack of reform leadership from President Buhari and economic growth has been struggling to outpace population growth. More recently, this situation has been exacerbated by increasing concerns over capital controls, which keep us out of the market. Elsewhere in Africa, the partial removal of an interest rate cap in Kenya in 2019 was a positive catalyst for the market. We are able to find opportunities in the market, 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 are structurally well-placed to catch up with more developed markets. The EU Recovery Fund will help to reduce macroeconomic risk going forward. 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 considering the strong long-term fundamentals and attractive valuations, as well as uncorrelated nature of the returns compared to developed and emerging markets. 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 A)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Since Manager Inception
Fund % 48.40% 9.95% 8.50% 4.25% 28.97%
Indicative Benchmark % 32.86% 10.85% 10.10% 3.00% 17.39%
Excess Return % 15.54% -0.90% -1.60% 1.25% 11.58%

Inception Date 24-Jun-2014

Manager Inception Date 01-Jan-2021

Indicative Benchmark: Linked Benchmark Net

Data as of 31-Aug-2021

Performance figures calculated in USD

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 52.40% 6.71% 8.19% 3.81%
Indicative Benchmark % 40.12% 9.36% 9.66% 2.76%
Excess Return % 12.28% -2.65% -1.47% 1.05%

Inception Date 24-Jun-2014

Indicative Benchmark: Linked Benchmark Net

Data as of 30-Jun-2021

Performance figures calculated in USD

Recent Performance

  Month to DateData as of 21-Sep-2021 Quarter to DateData as of 21-Sep-2021 Year to DateData as of 21-Sep-2021 1 MonthData as of 31-Aug-2021 3 MonthsData as of 31-Aug-2021
Fund % 1.19% 5.00% 30.50% 2.35% 6.22%
Indicative Benchmark % 0.35% 2.50% 17.80% 2.44% 4.87%
Excess Return % 0.84% 2.50% 12.70% -0.09% 1.35%

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-Aug-2021 - Johannes Loefstrand, Portfolio Manager ,
Frontier equities gained solid ground in August, performing broadly in line with both their developed and emerging market peers. At a global level, hopes for an economic recovery combined with generally solid corporate earnings, largely offset concerns over increased regulatory control in China and the spread of the Delta variant. Within frontier equities, index heavyweight Vietnam posted modest returns but underperformed its benchmark peers. The country had weathered the pandemic well until recently, but the Delta variant has proven very difficult to manage and there are now strict containment measures in place in most parts of the country. In Morocco, investors were encouraged by good COVID-19 vaccination rates, some relaxation in coronavirus containment measures, and hopes that these will boost economic recovery. At the portfolio level, our stock selection in Kazakhstan and Slovenia made a positive contribution to performance while stock selection in Vietnam was the biggest single drag on portfolio returns. Within Kazakhstan, our significant holding in Halyk Savings Bank contributed significantly to relative gains as investors reacted enthusiastically to results, which delivered a sharp rise in return on equity (ROE) and upgraded full-year guidance.

Holdings

Total
Holdings
46
Largest Holding Mobile World Investment 7.61% Was (31-Mar-2021) 7.39%
Other View Full Holdings Quarterly data as of  30-Jun-2021
Top 10 Holdings 53.16% View Top 10 Holdings Monthly data as of  31-Aug-2021

Largest Top Contributor^

Mobile World Investment
% of fund 7.60%

Largest Top Detractor^

Marel HF
% of fund 5.45%

^Absolute, percentages based on the difference between the total net assets of the two largest holdings of the fund.

Quarterly Data as of 30-Jun-2021

Top Purchase

Marel HF
5.45%
Was (31-Mar-2021) 1.39%

Top Sale

Vietnam Prosperity JSC Bank
0.00%
Was (31-Mar-2021) 2.27%

Quarterly Data as of 30-Jun-2021

30-Jun-2021 - Johannes Loefstrand, Portfolio Manager ,

Over the course of the first quarter, we reduced our position in Morocco and eliminated our remaining exposure to Sri Lanka. We identified a new opportunity in the Baltic region and raised the extent of our existing holdings in Iceland and Kazakhstan.

Vietnam

Vietnam remains the portfolio's largest country position, on both an absolute and relative basis. However, despite it being our highest conviction market, high valuations and coronavirus concerns led us to trim our exposure over the past three months. In our view the risk-reward has become less attractive in the wake of the strong market performance in recent months. In addition, although the country has handled the pandemic well and vaccination program remains on target, the number of COVID-19 cases surged in the second quarter and the associated containment measures are likely to have an effect on the real economy and on corporate earnings.

  • We sold out of the position in Vietnam Prosperity Bank, which is private retail focused. Over the quarter, the bank announced the sale of FE Credit, a subsidiary consumer finance company that has grown to become one of the largest consumer credit franchises in Vietnam. This boosted the share price and with the value of the sale now priced in, we find higher conviction Vietnamese bank opportunities.
  • We continued to reduce our holding in Military Commercial Bank as the valuation has become less appealing following very strong share price performance. That said, the bank delivered strong first quarter results, is well-positioned to weather the disruption caused by the pandemic and continues to remain profitable. It is furthermore undergoing a digital transformation which should help with further expansion of the customer base.
  • We reduced our holding in technology and telecoms company FPT, primarily due to profit taking following strong performance. The company reported strong growth across key segments and is set to benefit from businesses' growing reliance on IT and digital transformation in a post-pandemic world. The strong growth momentum looks set to continue into 2021 and 2022. The holding remains amongst the top positions in the portfolio.
  • Conversely, we topped up our position in Bank for Foreign Trade, the smallest of the three listed state-owned commercial banks in Vietnam. The bank has over 100 branch locations and around 450 transaction offices offering both commercial and retail banking products and services, including financial leasing, securities brokerage, cash remittance, and office leasing services. The bank has been improving asset quality, demonstrating prudent management of pandemic related risks and reporting excellent profitability.

The Baltics

Over the quarter we found a new opportunity in the Baltic region. We believe the economies in this region are well-placed to catch up with the rest of Europe and stand to benefit from the European Union's Recovery and Resilience Facility and other fiscal support measures. The region has also become a hub for start-up companies.

  • We participated in the IPO of Baltic Classifieds Group, which operates a portfolio of leading online classified portals across Lithuania, Estonia and Latvia via 12 portals. The portfolio includes vertical sites, covering automotive, real estate, jobs and services, alongside generalist portals. The group's sites command dominant market leading positions, making this an attractive asset with strong network effects and leadership that could be hard to disrupt. This is further supported by the group's market leading earnings margins. �

Kazakhstan

We raised the extent of our existing holdings in Kazakhstan due to index dynamics.

  • For example, we added to our position in Halyk Savings Bank, the leading universal bank in Kazakhstan with the largest market share among the Kazakh banks. In our view, the bank has one of the highest sustainable returns on equity among the Emerging European banks. It has moved to a new dividend payout policy of 50-100% of net income and was one of the few banks to pay out dividends from 2019 earnings. The valuation is attractive, and we expect the stock to rerate further from here.

Iceland

Iceland joined the MSCI Frontier Markets Index in May 2021. �In order to maintain our relative weight relative to the index, we added to one of our existing positions.

  • Marel is a global market leader in advanced processing equipment, systems and services to the animal protein industry. It supplies innovation-driven equipment, automation software and services to meet the growing global demand protein and processed food, whilst minimizing waste and increasing added value for its customers. We believe the company can deliver strong organic growth and improving profitability.

Kenya

We made some adjustments to our Kenya exposure, largely on relative valuation grounds.

  • We reduced our position in telecommunication services company Safaricom, which is the leading mobile operator in Kenya. Services include mobile solutions, fixed line solutions, M-PESA payment solutions, calling services and cloud and hosting services. Over the quarter, a consortium which included Safaricom and Vodacom was awarded a new telecommunications license in Ethiopia ? a large but nascent market. The company's valuation appears to be expensive relative to historical levels. We maintain our holding in the stock, although this has moved closer to a neutral position versus the benchmark.

Sri Lanka

We closed our already limited exposure to Sri Lanka by eliminating our last remaining holding.

  • Although we continue to view Ceylon Cold Stores as a decent business that trades at a reasonable valuation, we see more compelling investment opportunities elsewhere. Sri Lanka faces significant macroeconomic issues and there are also substantial liquidity issues in the country's equity market.

Sectors

Total
Sectors
11
Largest Sector Financials 32.23% Was (31-Jul-2021) 31.63%
Other View complete Sector Diversification

Monthly Data as of 31-Aug-2021

Indicative Benchmark: MSCI Frontier Market 10/40 Index Net

Top Contributor^

Financials
Net Contribution 1.85%
Sector
-0.14%
Selection 1.99%

Top Detractor^

Materials
Net Contribution -1.52%
Sector
-1.51%
Selection
-0.00%

^Relative

Quarterly Data as of 30-Jun-2021

Largest Overweight

Consumer Discretionary
By14.11%
Fund 14.35%
Indicative Benchmark 0.25%

Largest Underweight

Materials
By-9.19%
Fund 0.11%
Indicative Benchmark 9.30%

Monthly Data as of 31-Aug-2021

31-Aug-2021 - Johannes Loefstrand, Portfolio Manager ,
We made no significant changes to the sector positioning in August. Within communication services, we took some profit in our holding in a Philippines-based fixed broadband provider. Its shares had risen sharply on the back of solid quarterly results, including very rapid growth in both revenue and earnings. We retain a position in the name and continue to see the company as a well-run, market-share gainer in an under-penetrated broadband market. The portfolio’s main sector overweight positions remain in consumer discretionary and information technology while the most significant underweight positions are materials, real estate, financials, and health care.

Regions

Total
Regions
5
Largest Region Pacific Ex Japan 47.63% Was (31-Jul-2021) 48.74%
Other View complete Region Diversification

Monthly Data as of 31-Aug-2021

Indicative Benchmark: MSCI Frontier Market 10/40 Index Net

Top Contributor^

Pacific ex Japan
Net Contribution 1.33%
Region
0.44%
Selection 0.89%

Top Detractor^

Latin America
Net Contribution -0.41%
Region
-0.41%
Selection
0.00%

^Relative

Quarterly Data as of 30-Jun-2021

Largest Overweight

Pacific Ex Japan
By16.09%
Fund 47.63%
Indicative Benchmark 31.53%

Largest Underweight

Middle East & Africa
By-22.12%
Fund 16.28%
Indicative Benchmark 38.41%

Monthly Data as of 31-Aug-2021

Countries

Total
Countries
17
Largest Country Vietnam 33.57% Was (31-Jul-2021) 34.90%
Other View complete Country Diversification

Monthly Data as of 31-Aug-2021

Indicative Benchmark: MSCI Frontier Market 10/40 Index Net

Top Contributor^

Morocco
Net Contribution 0.71%
Country
0.36%
Selection 0.35%

Top Detractor^

Kazakhstan
Net Contribution -0.78%
Country
-0.09%
Selection
-0.69%

^Relative

Quarterly Data as of 30-Jun-2021

Largest Overweight

United Kingdom
By5.47%
Fund 5.47%
Indicative Benchmark 0.00%

Largest Underweight

Bahrain
By-7.24%
Fund 0.00%
Indicative Benchmark 7.24%

Monthly Data as of 31-Aug-2021

31-Aug-2021 - Johannes Loefstrand, Portfolio Manager ,
We have become more cautious on the near-term macroeconomic backdrop in Vietnam. Given the evolving situation, we have reduced our exposure as we believe the short-term risks are now more elevated. Vaccination rates are currently low and the strict containment measures necessary to control the new variant will likely have an impact on the economy. In particular, we have been trimming our bank positions. Longer term, we believe Vietnam still offers a very attractive opportunity; our holdings are focused on companies that we believe are most able to execute well in, or even benefit from, a difficult operating environment.

Team (As of 10-Sep-2021)

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.