Last night Advance Frontier Markets published results for the year ended 30 June 2015. Over that period the fund’s net asset value fell by 11.2% and the share price fell by 10.9%. The MSCI Frontier Markets Net Total Return Index declined by 13.9% over the period.
The manager says asset allocation, manager selection and discount movements all contributed positively to performance relative to the frontier index. Significant exposures to Vietnam, Qatar and Saudi Arabia, while at the same time maintaining lower allocations than the frontier index in markets such as Nigeria and Kuwait were the main contributors to relative outperformance.
They say manager selection was broadly positive, with continued strong relative performance from holdings including EFG-Hermes Saudi Arabia Equity Fund (NAV +17.4% vs S&P Saudi Arabia -4.8%) and Ashmore Middle East Equity Fund (NAV +7.2% vs MSCI Arabia -3.2%). In Africa, the Fund’s core holdings performed well in challenging conditions. Ashmore’s Africa Emerging Markets Fund benefitted from low exposure to Nigeria throughout the year (NAV -7.0% vs MSCI Frontier Markets Africa Index -21.1%) while SCM Africa enjoyed strong stock selection in Egypt and Nigeria (NAV -8.6%). Sustainable Capital’s Africa Consumer Fund proved its defensive qualities in the first two years of its life, outperforming both African equities generally and competitor funds but was not immune to market weakness. In the period in question its NAV declined by 14.9%. On the negative side, their investment in East Africa managed by PineBridge proved disappointing (NAV -12.0% vs MSCI Kenya +2.9%) on account of poor stock selection in the Kenyan market and the fund’s allocation to the weaker performing markets of Rwanda, Mauritius and Zambia, in which the Fund also invests. Sustainable Capital Nigeria underperformed the Nigerian market on account of its high exposure to financials (NAV -38.6% vs MSCI Nigeria -30.9%). Exposure to frontier natural resources and energy companies through Tugela African Resources and selected direct equity investments trended down in line with the fortunes of those sectors globally.
In Vietnam, the Fund’s investments in VietNam Holding Limited and PXP Vietnam Fund (which merged into PXP Vietnam Emerging Equity Fund during the period) outperformed the MSCI Vietnam Index while the more diversified VinaCapital Vietnam Opportunity Fund trailed by a small margin. In Eastern Europe, Avaron Emerging Europe Fund and Sturgeon Central Asia Equities Fund both outperformed regional benchmarks in declining markets, with NAV returns of -15.4% and -20.2% respectively. In Romania, the Fund’s holding in Fondul Proprietatea underperformed the market (NAV total return -21.3% vs MSCI Romania -13.2%). Fondul’s discount stood at 32.9% at period end, a level slightly wider than that at which it commenced the year. This was despite the success of the listing of a depositary receipt on its shares on the London Stock Exchange in April, which makes it accessible to a wider audience of investors and ought to contribute to discount compression over the longer term.
The small positive contribution to performance from discount narrowing was helped once more by corporate activity on the Fund’s closed end investments. In mid-December 2014, shareholders in PXP Vietnam Fund voted to approve a merger with the open-ended PXP Vietnam Emerging Equity Fund on an NAV for NAV basis. AFMF benefitted substantially from the elimination of PXP Vietnam Fund’s discount which stood at 13.9% at the end of August 2014, prior to the first announcement regarding the merger. In Pakistan, the Fund’s two closed end investments (Picic Growth Fund and Picic Investment Fund) continued to pay out significant dividends, with the trailing yield on both funds close to 17% at year-end, despite which they were trading on discounts of 32.0% and 26.3% respectively. The discounts of VietNam Holding Limited (from 23.9% to 12.1% at the end of the period) and VinaCapital Vietnam Opportunity Fund (from 24.0% to 22.0%) both narrowed, as investor appetite for assets in that market improved. Africa Opportunity Fund was one of just a handful of investments to suffer from discount widening with the fund’s rating declining from a 2.9% premium to a 10.0% discount in a period in which performance was negatively impacted by investments in Ghana, the natural resources and energy sectors. The NAV total return over the period was -27.3% which was disappointing in the context of the fund’s total return objective.
AFMF : Advance Frontiers beats falling benchmark