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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 LU1079768849 Valoren 24785106

3YR Return Annualised
(View Total Returns)

Total Assets
(USD)

2.68%
$237.1m

1YR Return
(View Total Returns)

Manager Tenure

6.14%
5yrs

Information Ratio
(5 Years)

Tracking Error
(5 Years)

0.21
5.23%

Inception Date 24-Jun-2014

Performance figures calculated in GBP

Other Literature

31-Oct-2019 - Oliver Bell, Portfolio Manager,
We believe the outlook for frontier markets should continue to improve as several country-level developments currently weighing on markets get resolved. With much of this already reflected in asset prices, markets are primed for an improvement in sentiment, in our view, as three catalysts – elections, MSCI reclassifications and trade and geopolitical developments – play out over the year.
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

Durable secular growth in frontier markets and low correlation to the global cycle is bringing increasing attention to an asset class that has been overlooked in recent years. Frontier markets are a heterogeneous group of countries, and correlations between them are 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, but valuations are very attractive, and, in a time of low global growth, the universe offers exposure to strongly growing countries and companies.

In frontier Asia, including Vietnam, Sri Lanka, and Bangladesh, growth prospects remain positive. Frontier Asian economies are becoming important destinations for the setup of lower-cost manufacturing, especially as China trade risks heighten.

Vietnam has been a particular beneficiary of the U.S.-China trade war, although U.S. President Donald Trump's threats of an expansion of tariffs are a concern. Vietnam is steadily growing exports to levels consistent with many developed countries and is transitioning from a focus on apparel manufacturing to becoming a significant exporter of technological equipment, particularly mobile phones and devices. Meanwhile, a young, highly productive middle class continues to emerge, and strong real wage growth, plus the emergence from a banking crisis, is boosting consumption.

In frontier emerging market Pakistan, the market appears to be bottoming. Macroeconomics and geopolitics are a concern, given twin deficits, rising inflation and currency depreciation, and relations with India over the Kashmir conflict. 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 IMF, which was approved in July.

In Africa, sentiment in Nigeria has weakened due to a lack of reform leadership from President Buhari, which had been hoped for after his win of a second term in office. Despite emerging from a two-year recession in 2017, economic growth has so far failed to outpace population growth. Valuations are attractive but catalysts for growth are limited. We have reduced positions but keep watch for a stronger government focus on economics.

Frontier emerging market Egypt has embarked on an IMF reform agenda and loan program. If the political situation remains stable, this should drive a material improvement to the country's economic backdrop. While challenges still exist, we are starting to see signs of easing inflation, an improving budget deficit, and currency stability.

In the Middle East, drone attacks on two Saudi Arabian oil plants in September highlighted the vulnerability to geopolitical risks in the region. However, the market reaction was somewhat subdued, and production appears to have been reinstated quickly. Saudi Arabia's reclassification to emerging markets status by the MSCI, which was completed in the third quarter, has brought increasing attention to the nation, as has the preparation for the Saudi Aramco IPO.

We are selective on bottom-up ideas here and continue to hold our highest-conviction names. In Kuwait, structural domestic improvement and a government push on infrastructure projects is providing a boost, as well as the announcement by MSCI that Kuwait is likely to be reclassified to emerging market status in 2020.

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. For example, GDP growth for many frontier markets is likely to range from about 6% to 9% in the years ahead, much stronger than in the developed and emerging markets universes.

Also, 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 stock valuations are still reasonable, 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 Q | GBP)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Since Manager Inception
Annualised
Fund % 6.14% 2.68% 5.23% 6.50% 6.50%
Indicative Benchmark % 9.25% 5.39% 4.10% 4.56% 4.56%
Excess Return % -3.11% -2.71% 1.13% 1.94% 1.94%

Inception Date 24-Jun-2014

Manager Inception Date 24-Jun-2014

Indicative Benchmark: MSCI Frontier Market Index Net

Data as of  31-Oct-2019

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 7.80% 6.95% 6.24% 7.71%
Indicative Benchmark % 12.03% 8.91% 4.29% 5.45%
Excess Return % -4.23% -1.96% 1.95% 2.26%

Inception Date 24-Jun-2014

Indicative Benchmark: MSCI Frontier Market Index Net

Data as of  30-Sep-2019

Performance figures calculated in GBP

Recent Performance

  Month to DateData as of 15-Nov-2019 Quarter to DateData as of 15-Nov-2019 Year to DateData as of 15-Nov-2019 1 MonthData as of 31-Oct-2019 3 MonthsData as of 31-Oct-2019
Fund % 1.36% -3.99% 8.65% -5.27% -10.08%
Indicative Benchmark % 1.19% -2.86% 11.10% -4.00% -7.96%
Excess Return % 0.17% -1.13% -2.45% -1.27% -2.12%

Inception Date 24-Jun-2014

Indicative Benchmark: MSCI Frontier Market Index Net

Indicative Benchmark: MSCI Frontier Market Index Net

Performance figures calculated in GBP

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.

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. 

31-Oct-2019 - Oliver Bell, Portfolio Manager,
Frontier markets had a positive month but lagged their developed and emerging equity peers in October. Kenya was a key area of strength, with index heavyweight Safaricom rallying on the announcement of Peter Ndegwa as the telecommunications company’s new CEO. Conversely, Nigeria lagged and share prices fell amid a weak third-quarter corporate earnings season. Within the portfolio, our lack of exposure to the outperforming Kenyan market hindered performance the most. Equity Group, the second-largest bank in Kenya by assets, benefitted from speculation that a cap on lending rates introduced in September 2016 would be lifted. Stock selection in Bangladesh also hurt. Brac Bank underperformed, as earnings fell short of expectations due to weakness in its subsidiary bKash. In contrast, positive stock selection in Sri Lanka boosted relative returns. Mobile service provider Dialog Axiata registered strong share price gains in a month in which it announced a partnership with Samsung to offer perks with the newly launched Galaxy A Series smartphone. Our overweight exposure to Pakistan added further value. Nestle Pakistan recorded solid sales growth in the third quarter as a result of focussed demand generation activities, the introduction of new products, and continued investment in its brands.

Holdings

Total
Holdings
68
Largest Holding National Bank of Kuwait 9.45% Was (30-Jun-2019) 9.81%
Other View Full Holdings Quarterly data as of 30-Sep-2019
Top 10 Holdings 43.86% View Top 10 Holdings Monthly data as of 31-Oct-2019

Largest Top Contributor^

Military Commercial Joint Stock Bank
By 2.69%
% of fund 5.89%

Largest Top Detractor^

National Bank of Kuwait
By -0.79%
% of fund 9.44%

^Absolute

Quarterly Data as of 30-Sep-2019

Top Purchase

Banca Transilvania
2.79%
Was (30-Jun-2019) 1.71%

Top Sale

Grupo Financiero Galicia (E)
0.00%
Was (30-Jun-2019) 1.76%

Quarterly Data as of 30-Sep-2019

30-Sep-2019 - Oliver Bell, Portfolio Manager,

The biggest shift in portfolio positioning in the quarter was to sell most of our Argentinian holdings (except one remnant holding, Importadora Y Exportadora De La Patagonia). This decision was prompted by the surprise outcome in the primary elections in August-and while we can reinvest in Argentina, we are unlikely to do so anytime soon given the political uncertainty.

We also significantly reduced our position in Saudi Arabia following drone attacks on the oil fields of state-owned Saudi Aramco, which temporarily halved its production. Elsewhere, we increased our exposure to both Pakistan and Egypt, where we are finding attractive investment opportunities with cheap valuations.

Argentina

Political developments prompted us to sell most of our holdings in Argentina. This included the bank Grupo Financiero Galicia. We had already trimmed the position materially given election-related risk and in order to reduce our exposure following Argentina's upgrade to emerging markets status by index provider MSCI. We also sold Mercadolibre, Latin America's largest online trading platform, which has been a strong performer for the portfolio, due to its exposure to Argentina. Other sales included Banco Frances, Loma Negra, and Globant.

Saudi Arabia

We have reassessed our views on Saudi Arabia following the drone attacks on Saudi Aramco's facilities, which signaled heightened geopolitical risk, and the muted market reaction to the inclusion of the second tranche of Saudi Arabian stocks in the MSCI Emerging Markets Index. Saudi British Bank has struggled to overcome a worsening asset quality cycle, while the CEO has expressed concerns about the lack of loan growth, which added to our reasons for selling the stock. We also sold Saudi Company For Hardware, a retailing and wholesaling business, which has seen profit margins come under pressure amid aggressive promotional activity during the quarter.

Pakistan and Egypt

We entered the Pakistan market over the quarter with the purchase of food company Nestle Pakistan, which is a subsidiary of the Swiss multinational company. The company stands to benefit from improving consumer sentiment in Pakistan. In Egypt, meanwhile, we initiated a position in the country's largest private bank, Commercial International Bank. This is our favored stock pick in Egypt. We believe the bank is well positioned for an improved macroeconomic scenario, with ample liquidity and solid potential for corporate loan growth, particularly as interest rates come down.

Building Positions

After participating in the company's IPO earlier this year, we took advantage of an attractive valuation to increase our position in Network International, a digital payments provider that operates in Africa and the Middle East. The company operates in one of the most underpenetrated payment regions globally and is the only pan-regional provider of digital solutions at scale, with a presence across the entire value chain.

We also added to our position in Romania's second-largest bank, Banca Transilvania. The bank has a high-quality domestic franchise and leading returns, asset quality and capitalization, plus a strong management team with a focus on expansion.

Sectors

Total
Sectors
11
Largest Sector Financials 54.80% Was (30-Sep-2019) 54.17%
Other View complete Sector Diversification

Monthly Data as of 31-Oct-2019

Indicative Benchmark: MSCI Frontier Markets Index

Top Contributor^

Consumer Discretionary
Net Contribution 1.06%
Sector
-0.28%
Selection 1.33%

Top Detractor^

Financials
Net Contribution -0.80%
Sector
-0.03%
Selection
-0.76%

^Relative

Quarterly Data as of 30-Sep-2019

Largest Overweight

Consumer Discretionary
By7.15%
Fund 7.29%
Indicative Benchmark 0.14%

Largest Underweight

Communication Services
By-9.33%
Fund 4.92%
Indicative Benchmark 14.24%

Monthly Data as of 31-Oct-2019

31-Oct-2019 - Oliver Bell, Portfolio Manager,
We added some exposure in the communication services sector, initiating a position in the largest infrastructure tower company in Africa. Given that the company is UK-listed, this means that it has commensurately high environmental, social and governance standards, and a business model that insulates investors from currency devaluations and power-related cost inflation.

Regions

Total
Regions
5
Largest Region Middle East & Africa 50.10% Was (30-Sep-2019) 51.24%
Other View complete Region Diversification

Monthly Data as of 31-Oct-2019

Indicative Benchmark: MSCI Frontier Markets Index

Top Contributor^

Pacific ex Japan
Net Contribution 3.59%
Region
0.45%
Selection 3.13%

Top Detractor^

Latin America
Net Contribution -2.31%
Region
-2.31%
Selection
0.00%

^Relative

Quarterly Data as of 30-Sep-2019

Largest Overweight

Pacific Ex Japan
By13.32%
Fund 35.25%
Indicative Benchmark 21.94%

Largest Underweight

Middle East & Africa
By-16.62%
Fund 50.10%
Indicative Benchmark 66.72%

Monthly Data as of 31-Oct-2019

Countries

Total
Countries
25
Largest Country Kuwait 30.87% Was (30-Sep-2019) 30.63%
Other View complete Country Diversification

Monthly Data as of 31-Oct-2019

Indicative Benchmark: MSCI Frontier Markets Index

Top Contributor^

Vietnam
Net Contribution 2.77%
Country
0.29%
Selection 2.49%

Top Detractor^

Argentina
Net Contribution -2.32%
Country
-2.32%
Selection
0.00%

^Relative

Quarterly Data as of 30-Sep-2019

Largest Overweight

Vietnam
By6.37%
Fund 25.14%
Indicative Benchmark 18.77%

Largest Underweight

Kenya
By-6.52%
Fund 0.00%
Indicative Benchmark 6.52%

Monthly Data as of 31-Oct-2019

31-Oct-2019 - Oliver Bell, Portfolio Manager,
We reduced our exposure to Bahrain through the sale of Aluminium Bahrain. The company has come under pressure as aluminium demand has lost momentum in most global markets, with consumption trends broadly flat. Elsewhere, we increased our holdings in Egypt. We added to our position in a leading snack food company, anticipating a strong second half of the year and 2020 as domestic consumption strengthens and new product lines are launched—we expect these to be well received, particularly the meal replacement savoury croissants.

Team (As of 31-Aug-2019)

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
    12
  • Years investment
    experience
    12

Fee Schedule

Share Class Minimum Initial Investment and Holding Amount Minimum Subsequent Investment Minimum Redemption Amount Sales Charge (up to) Investment Management Fee (up to) Ongoing Charges
Class A $15,000 $100 $100 5.00% 200 basis points 2.17%
Class I $2,500,000 $100,000 $0 0.00% 110 basis points 1.18%
Class Q $15,000 $100 $100 0.00% 110 basis points 1.27%
Class S $10,000,000 $0 $0 0.00% 0 basis points 0.07%

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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