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The top-performing frontier markets equity managers revealed

Citywire Global uncovers the strongest performing managers running funds in the specialist sector over the past 36 months.

Leading from the front

While emerging markets countries such as Brazil, China and Russia are always on investors' radars, frontier markets are still viewed by some as an uncertain area of exploration.

Concerns over the volatility of these markets is evident, as ratings agency Moody's only had a positive outlook for Georgia, Honduras and Senegal on its list of 29 frontier market countries this year. However, 25 fund managers saw the value in this sector and 11 of them outperformed the average manager's total return of 15.27%

Among the biggest bets among managers were in markets such as Argentina, which recently chose Mauricio Macri as its new president. Other popular investment destinations in this area include the United Arab Emirates and Kuwait. This is while most of the investments are concentrated in financials or consumer-oriented sectors.

With that in mind, Citywire Global has shone a light on the top five managers in the frontier markets equity funds to uncover how they have positioned to outperform against this backdrop.

Note: Returns shown in dollar terms for the three years to the end of October 2015, representing managers' cumulative returns across all funds they run in the sector.

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5. Tim Drinkall, Morgan Stanley

Funds: Morgan Stanley Frontier Emerging Markets Equity, Morgan Stanley Galaxy Fd Frontier Em Mkts B USD and Morgan Stanley Frontier Emerging Markets;I.

Three year total return: 30.13%

Tim Drinkall, who is + rated by Citywire, runs three funds in the frontier markets, which includes the Morgan Stanley Frontier Emerging Markets fund, which invests at least 70% of its volume in companies’ shares.

According to the most recent factsheet, the biggest country allocation in the fund is Argentina at 13.44% of exposure. In his latest investment note, Drinkall is positive about new Argentianian president Macri and his ability to implement new policies swiftly.

The biggest sector in the fund is financials with 54.3% of exposure. The second biggest sector consumer staples is considerably smaller at 14.54%. The top three holdings in the fund are a National Bank of Kuwait, a Romanian bank Banca Transilvania and an Argentinian bank group Banco Macro.

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4. Allan Conway and Ramzi Sidani, Schroders

Fund: Schroder ISF Frontier Markets Equity

Three year total return: 32.15%

Citywire + rated Allan Conway and AA-rated Ramzi Sidani's Schroder ISF Frontier Markets Equity fund invests at least two-thirds of its assets in frontier markets companies.

According to the fund’s investment strategy, frontier countries are characterised by large populations and low labour costs, and they also benefit from access to significant natural resources.

The biggest overweight holding in the fund is Union National Bank from the United Arab Emirates, which makes up 5.1% of the allocation. This is followed by a 4.5% overweight in a real estate developer Emaar Properties and 4.3% in Engro, a Pakistani fertilisers, foods and chemicals producer. The biggest underweight in the fund is Kuwait Finance House.

On the sector level, the fund’s two biggest overweights are financials and telecommunication services. This is while Kuwait, United Arab Emirates and Pakistan are three biggest country overweights.

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3. Chris Turner and Andrew Brudenell

Funds: HSBC GIF Frontier Markets IC USD, HSBC Frontier Markets Fund;I

Three year total return: 33.03%

Citywire A-rated Chris Turner and Andrew Brudenell are responsible for the HSBC GIF Frontier Markets fund, which invests in a diversified portfolio of equities. The fund managers apply both a top-down country approach and a bottom-up stock analysis, with a strong emphasis on the latter.

According to the latest investment commentary, the biggest relative returns over the month came from the Phillippines. Two of the country’s geothermal energy companies gaining value on the news that new transmission line would add more capacity to the grid. Vietnamese dairy products company and hospital groups from the United Arab Emirates were also positive contributors.

At the end of October 2015, the fund was overweight Pakistan, United Arab Emirates, Saudi Arabia and Georgia, while underweight Morocco, Philippines, Qatar and Argentina.

On the sector level the biggest overweights are utilities, consumer discretionary, and materials. The most prominent underweight positions are telecommunications, financials and energy.The top three holdings are two Argentinian banking groups, Grupo Finaciero and Banco Macro, as well as Peruvian financial holding company Credicorp.

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2.Thomas Vester, BMO Global Asset Management

Fund: BMO LGM Frontier Markets

Three year total return: 33.48%

Citywire A-rated Thomas Vester runs the BMO LGM Frontier Markets fund, which is primarily invested in equity and equity-related securities of companies in frontier markets worldwide.

The biggest two sector allocations in the fund are consumer staples, which is 42.9% of exposure, while financials is 30% of the fund. The smallest exposure in the fund is to materials with 2.7%.

The biggest country allocations in the fund are Egypt with 12.6% of exposure followed by Nigeria (8.9%) and Vietnam (8.4%). There are 23 countries in the portfolio, which have a weight of more than 1% in the fund.

The top three stocks in the fund are Vietnam Dairy Products, Commercial International Bank from Egypt and Guaranty Trust Bank from Nigeria. The fund has 45 holdings overall, 63.7% of them have market cap between $1-5 billion.

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1. Thomas Hugger, Asia Frontier Capital

Funds: AFC Asia Frontier USD-A, AFC Asia Frontier (Non-US) USD-A

Three year total return: 42.5%

Citywire + rated Thomas Hugger runs the AFC Asia Frontier fund, which focuses on consumer, financial and infrastructure stocks. The goal of the fund is to offer investors high returns which have a lower correlation with global and emerging markets and provide a significant diversification.

Hugger implements a combination top-down and bottom-up strategy to seize both growth and value opportunities. The top-performing portfolio stocks in October were a Cambodian junior gold mining company, followed by a Vietnamese truck producer, an oil producer from Myanmar and a Mongolian construction material company.

Hugger recently added to existing positions in Bangladesh, Laos, Mongolia, Papua New Guinea, and Vietnam. Meanwhile he completely exited a construction material company in Vietnam, a bank and an insurance company in Pakistan, a textile company, trading house, and oil distributor in Bangladesh, as well as two mining companies in Mongolia.

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Related Fund Managers

Ramzi Sidani
Ramzi Sidani
31/49 in Equity - Frontier Markets (Performance over 3 months) Average Total Return: 5.94%
Chris Turner
Chris Turner
7/31 in Equity - Frontier Markets (Performance over 3 years) Average Total Return: 3.34%
Andrew Brudenell
Andrew Brudenell
6/31 in Equity - Frontier Markets (Performance over 3 years) Average Total Return: 5.74%
Thomas Vester
Thomas Vester
16/31 in Equity - Frontier Markets (Performance over 3 years) Average Total Return: -1.04%
Thomas Hugger
Thomas Hugger
1/31 in Equity - Frontier Markets (Performance over 3 years) Average Total Return: 36.52%
Tim Drinkall
Tim Drinkall
18/31 in Equity - Frontier Markets (Performance over 3 years) Average Total Return: -5.12%
Allan Conway
Allan Conway
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