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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)

2.23%
$221.2m

1YR Return
(View Total Returns)

Manager Tenure

0.77%
5yrs

Information Ratio
(5 Years)

Tracking Error
(5 Years)

-0.03
4.89%

Inception Date 24-Jun-2014

Performance figures calculated in USD

Other Literature

29-Feb-2020 - Oliver Bell, Portfolio Manager,
Conditions and investment opportunities vary widely among frontier markets, even those within the same region. While stock valuations are reasonable, and the long-term growth outlook of many corporations remains underpriced, we acknowledge that there will be individual winners and losers. We are selective on our bottom-up ideas and continue to hold our highest-conviction names. In a time of low global growth, our investment universe offers exposure to strongly growing countries and companies.
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, particularly Vietnam and Sri Lanka, growth prospects remain positive, while the equity market in Bangladesh has sold off meaningfully as of late. Frontier Asian economies are becoming important destinations for the set-up of lower cost manufacturing, especially as China trade risks heighten.

Vietnam has been a significant beneficiary of the U.S.-China trade war. 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, are 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 U.S.D $6 billion bailout package from the International Monetary Fund (IMF), which was approved in July.

In Africa, sentiment in Nigeria has weakened 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 is struggling 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 recently completed an IMF-backed 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, recent geopolitical tensions in the region are a concern. There is a long history of such tensions flaring up, and while further retaliatory action cannot be ruled out, we think that the most recent events will pass without a major escalation. If this is the case, then the impact should be relatively constrained.

Saudi Arabia's reclassification to emerging markets status by the MSCI, which was completed in 2019, brought increasing attention to the nation, as did 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 the MSCI that Kuwait will be reclassified to emerging market status in May 2020. We maintain strong conviction here, particularly in the financial sector.

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 I)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Since Manager Inception
Annualised
Fund % 0.77% 2.23% 1.56% 0.83% 0.83%
Indicative Benchmark % 5.07% 4.79% 1.70% -0.66% -0.66%
Excess Return % -4.30% -2.56% -0.14% 1.49% 1.49%

Inception Date 24-Jun-2014

Manager Inception Date 24-Jun-2014

Indicative Benchmark: Linked Benchmark Net

Data as of  29-Feb-2020

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 14.47% 6.25% 3.03% 2.25%
Indicative Benchmark % 17.99% 9.15% 2.69% 0.43%
Excess Return % -3.52% -2.90% 0.34% 1.82%

Inception Date 24-Jun-2014

Indicative Benchmark: Linked Benchmark Net

Data as of  31-Dec-2019

Performance figures calculated in USD

Recent Performance

  Month to DateData as of 27-Mar-2020 Quarter to DateData as of 27-Mar-2020 Year to DateData as of 27-Mar-2020 1 MonthData as of 29-Feb-2020 3 MonthsData as of 29-Feb-2020
Fund % -23.47% -29.09% -29.09% -6.60% -4.38%
Indicative Benchmark % -20.69% -25.42% -25.42% -6.13% -1.89%
Excess Return % -2.78% -3.67% -3.67% -0.47% -2.49%

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.

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. 

29-Feb-2020 - Oliver Bell, Portfolio Manager,
Frontier equity markets suffered sharp losses in February, falling more than emerging markets but outperforming their developed counterparts. Market turmoil was brought about by growing concerns around the economic impact of the coronavirus globally. In the portfolio, Helios Towers, a UK-listed telecommunications tower infrastructure company operating in Africa had the most negative impact on performance. Shares in the company followed the downwards trend of the FTSE 250 Index amid a flight to safety in the latter half of the month. In the United Arab Emirates, Network International, a provider of digital payments solutions, weakened on coronavirus concerns, primarily due to its exposure to the tourism and hospitality sectors in Dubai. In contrast, not holding Vingroup and Vinhomes in Vietnam added to relative performance. Demand for real estate company Vingroup’s destination assets suffered as coronavirus concerns grew. Its subsidiary Vinhomes also lagged amid investor risk aversion, despite the residential property developer reporting solid 2019 earnings growth. Our overweight position in Vietnam Prosperity Joint-Stock Commercial Bank also contributed positively; the bank reported a good fourth quarter of 2019, with earnings up 10% quarter-on-quarter and 3% year-on-year.

Holdings

Total
Holdings
67
Largest Holding Kuwait Finance House KSCP 9.61% Was (30-Sep-2019) 8.66%
Other View Full Holdings Quarterly data as of 31-Dec-2019
Top 10 Holdings 45.65% View Top 10 Holdings Monthly data as of 29-Feb-2020

Largest Top Contributor^

Kuwait Finance House KSCP
By 0.07%
% of fund 9.57%

Largest Top Detractor^

Military Commercial Joint Stock Bank
By -3.14%
% of fund 5.58%

^Absolute

Quarterly Data as of 31-Dec-2019

Top Purchase

Helios Towers (N)
1.79%
Was (30-Sep-2019) 0.00%

Top Sale

Masan
0.95%
Was (30-Sep-2019) 2.22%

Quarterly Data as of 31-Dec-2019

31-Dec-2019 - Oliver Bell, Portfolio Manager,

Kuwait

The fund's biggest absolute position is in Kuwait. We moved underweight Kuwait over the quarter, ahead of the country's inclusion in the MSCI Emerging Markets Index in May 2020. We took some profits from our financial sector holdings, National Bank of Kuwait (NBK) and Kuwait Finance House. NBK is Kuwait's first local bank, which has exhibited strong share price performance over the year. We continue to have a favourable view of the company, and it reported thesis confirming third-quarter results. Fundamentals remain strong, with inflecting loan growth, limited margin compression and a declining cost of risk.

Similarly, we locked in profits in Kuwait Finance House, an Islamic bank, following strong performance. Our view of the company remains positive, as it has been making improvements to disclosures in recent years and divesting its non-core businesses, resulting in a higher-quality income stream.

Vietnam

Vietnam remains the portfolio's second-largest absolute position and its biggest overweight. We made some changes to our exposures over the quarter. We topped up our holding in Mobile World Investment. The retailer has 40% market share in a maturing smartphone retail market and is growing its consumer electronics brand. We believe the key driver for the stock is likely to be the company's push into food retail.

We reduced our holding in investment holding company Masan, which engages in consumer products, financial services and resources sectors. While the stock offers access to various segments for the Vietnamese economy, we have some concerns about management and, therefore, find higher-conviction ideas elsewhere in the country.

Helios Towers's IPO

We initiated a position in Africa's largest listed telecom tower infrastructure company, participating in the October IPO. The group operates across five countries in sub-Saharan Africa and is exposed to favorable African population growth and data dynamics. The company is listed in the UK and is therefore governed by UK governance standards. Helios Towers benefits from a strong, diversified customer base, long-term organic growth opportunities in markets where mobile data demand is ramping up, a robust business model and attractive site economics.

Georgian Exchangeable Offer

We participated in an exchangeable offer to shareholders in Georgia Healthcare (GHG) into Georgia Capital. This is a UK-listed holding company, that is focused on investing in developing businesses in Georgia. We see upside in this more diversified, liquid and well-invested group, with Georgia Capital aspiring to deliver total shareholder returns of 10x over a 10-year period. The company offers, in our view, optimal exposure to Georgia, in the sense that it is weighted towards the more productive areas of the economy, including healthcare, banking, beverages, tourism and utilities.

Sectors

Total
Sectors
11
Largest Sector Financials 54.62% Was (31-Jan-2020) 55.73%
Other View complete Sector Diversification

Monthly Data as of 29-Feb-2020

Indicative Benchmark: MSCI Frontier Market 10/40 Index Net

Top Contributor^

Real Estate
Net Contribution 0.54%
Sector
0.16%
Selection 0.38%

Top Detractor^

Financials
Net Contribution -0.81%
Sector
0.10%
Selection
-0.91%

^Relative

Quarterly Data as of 31-Dec-2019

Largest Overweight

Consumer Discretionary
By8.03%
Fund 8.21%
Indicative Benchmark 0.18%

Largest Underweight

Communication Services
By-10.36%
Fund 4.65%
Indicative Benchmark 15.01%

Monthly Data as of 29-Feb-2020

29-Feb-2020 - Oliver Bell, Portfolio Manager,
We established a new position in a Kenyan bank, which we expect to be among the main beneficiaries of the national authorities’ decision to lift a long-standing cap on interest rates. This is likely to lead to higher loan growth and increased lending to parts of the economy that have had subdued development and access to credit.

Regions

Total
Regions
4
Largest Region Middle East & Africa 52.38% Was (31-Jan-2020) 52.80%
Other View complete Region Diversification

Monthly Data as of 29-Feb-2020

Indicative Benchmark: MSCI Frontier Market 10/40 Index Net

Top Contributor^

Developed Europe
Net Contribution 0.16%
Region
0.16%
Selection 0.00%

Top Detractor^

Pacific ex Japan
Net Contribution -0.65%
Region
-1.76%
Selection
1.11%

^Relative

Quarterly Data as of 31-Dec-2019

Largest Overweight

Pacific Ex Japan
By12.60%
Fund 33.12%
Indicative Benchmark 20.52%

Largest Underweight

Middle East & Africa
By-14.32%
Fund 52.38%
Indicative Benchmark 66.70%

Monthly Data as of 29-Feb-2020

Countries

Total
Countries
24
Largest Country Kuwait 31.37% Was (31-Jan-2020) 31.54%
Other View complete Country Diversification

Monthly Data as of 29-Feb-2020

Indicative Benchmark: MSCI Frontier Market 10/40 Index Net

Top Contributor^

Lebanon
Net Contribution 0.93%
Country
0.93%
Selection 0.00%

Top Detractor^

Kenya
Net Contribution -0.80%
Country
-0.80%
Selection
0.00%

^Relative

Quarterly Data as of 31-Dec-2019

Largest Overweight

Vietnam
By5.21%
Fund 22.57%
Indicative Benchmark 17.37%

Largest Underweight

Bahrain
By-7.12%
Fund 0.00%
Indicative Benchmark 7.12%

Monthly Data as of 29-Feb-2020

29-Feb-2020 - Oliver Bell, Portfolio Manager,
In Africa, sentiment in Nigeria has weakened due to a lack of reform leadership from President Muhammadu Buhari. Economic growth is struggling to outpace population growth. Valuations are attractive but catalysts for growth are limited, in our view. We have reduced our positions in the country, including in a Nigerian bank, but keeping watch for a stronger government focus on economics.

Currency

Total
Currencies
N/A

Team (As of 27-Mar-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 $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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