The best and worst frontier markets to invest in for 2017
Frontera recently spoke to James Bannan, Frontier Markets Fund manager at Coeli Asset Management. Coeli’s frontier market equity fund currently had a total of $322 million worth of strategic assets under management as of March 2017. The firm investment approach is to invest in high quality (high ROIC) companies that give domestic exposure to the frontier markets (FRN) (FM) which has enabled the firm to generate a 39.5% ROE as compared to the 11.4% return generated by the MSCI frontier market index. The fund also sports a lower P/E of 12.0 against the MSCI FM’s 14.2.
Top 5 frontier markets stocks
Top 5 holdings of the fund include:
| Portfolio Weight | Country | 1-Yr Price Return (as of April 18) | 1-Yr Benchmark Price Return | |
| Vietnam Dairy Products | 5.8% | Vietnam | 21.17% | 23.29% |
| United Bank Ltd. | 4.7% | Pakistan | 50.82% | 39.04% |
| Al Eqbal Co. | 4.7% | Jordan | 20.52% | 4.00% |
| Mobile World Investment | 4.6% | Vietnam | 114.47% | 23.29% |
| Banco Macro SA- ADR | 4.5% | Argentina | 25.74% | 9.83% |
Coeli’s frontier markets equity fund is heavy on the financials and the consumer sector. Within the frontier markets (FRN) (FM), the asset manager’s portfolio is heavily tilted towards Asian (AAXJ) (VPL).
Asian equity (AAXJ) has been outperforming the world (VTI) (ACWI) by a good measure, so far this year. The iShares MSCI All Country Asia ex Japan ETF (AAXJ) has generated a return of 14.4% for its investors so far this year (as of April 10), as compared to the Vanguard Total Stock Market ETF (VTI) which has returned about 5% YTD.
The best and worst frontier market for 2017
Coeli Asset Management’s approach to frontier market stock selection is earnings driven. Their fondness of frontier markets is associated with the fact that they:
- Offer long-term structural growth;
- Provide returns that have low correlations to more developed Emerging Markets; and
- Valuations are cheap on an absolute basis and even cheaper on a relative basis
Coeli’s top Asian markets for 2017 include Vietnam (VNM), Pakistan (PAK), and Bangladesh. The firm currently has a cautious approach towards Nigerian (NGE) equity.
