This €14.4m (£10.5m) fund launched on March 16 2011 and aims to deliver capital growth from a diversified portfolio of securities situated primarily in frontier markets.
Dominic Bokor-Ingram, portfolio adviser for frontier markets at Charlemagne Capital, which manages the fund, notes one of the key reasons for investing in the sector is to take advantage of the “excess economic growth in early-stage markets”.
The vehicle is one of the smaller funds in the frontier markets universe, and its process focuses on finding company management that can take advantage of the sector’s growth through executing their business plans.
“Therefore, we are looking at domestic industries, banking, telecoms, consumer healthcare and anything that is geared into that excess economic growth,” Mr Bokor-Ingram says.
While the fund’s process has remained the same since launch, frontier markets have evolved with both the United Arab Emirates (UAE) and Qatar being upgraded to emerging market status in 2014. But the manager points out this “is exactly the process we’re trying to play”.
He adds: “Why do we invest in frontier markets? It is for them to become emerging markets.”
The fund can still have holdings in countries that are no longer frontier markets, he notes, with the UAE accounting for the largest geographical allocation in the portfolio at 19 per cent.
He explains: “The hope is that when they get upgraded they do very well and valuations become more stretched than other frontier markets. Our natural sell decision when things become too expensive takes us out of those markets and we then recycle it into other cheaper frontier markets.”
The risk-reward level of the fund is a moderately high five out of seven, while the ongoing charge for the G-share class is 2.67 per cent, the fund’s key investor information document shows.
Since launch the N-euro share class, rebased in sterling, has delivered 0.7 per cent to September 17, compared with the MSCI Frontier Markets index’s rise of 18.4 per cent, data from FE Analytics shows. The fund has performed much better across three years, returning 29.7 per cent against the MSCI Frontier Markets index’s gain of 31 per cent.
The manager notes that in the past 12 to 18 months the fund has benefited from its holdings in what he terms the “reformist markets”. These are countries with positive political momentum that have not suffered too much from the low price of oil, such as Vietnam, Pakistan and Egypt.
“The biggest change to the fund this year has been the addition of a significant position in Egypt,” Mr Bokor-Ingram says. “While Egypt is classified as an emerging market rather than frontier, it has all the characteristics of a frontier market. Following [its] political problems, a new reformist government came in and is putting in place all the things we like to see. Given the size of the population and the history of the institutions that exist, as well as the mentality of the population in terms of entrepreneurship, we think this is one of the most exciting frontier markets.”