Aberdeen Frontier Markets experiences teething problems as moves to direct investment – Aberdeen Frontier Markets reports that, for the year ended 30 June 2017, the NAV rose by 13.7% in total return terms with the share price rising 16.7% as the discount narrowed. This compared to a gain of 19.7% for the MSCI Frontier Markets Index, all figures in US Dollar terms. The Board is recommending to shareholders the payment of a final dividend for the year of 1 cent, making 2 cents for the year as a whole.
During the half year to December 2016, and prior to the transition to direct equity investment, the company saw NAV and share price total returns, all in US dollar terms, of 3.7% and 6.3%, respectively. This compared to the MSCI Frontier Markets Net Total Return Index’s 3.2% gain. They say that the outperformance over the six month period was due to the solid performance of certain underlying managers, as well as discount narrowing. In particular, the managers in Vietnam, Argentina and Kazakhstan did well, while individual funds in Romania and Vietnam also contributed to relative returns following a narrowing of their discounts. In particular, the managers in Vietnam all enjoyed significant outperformance over the MSCI Vietnam Index (which comprised just 9 companies), with VinaCapital Vietnam Opportunity Fund the best performer (NAV +10.0%). Strong relative performance was also delivered by the fund’s managers in Argentina (Copernico) and Kazakhstan (Sturgeon). Asset allocation was a detractor during the period, with low levels of exposure to Morocco, where the market rose by 20.1% and Kuwait which posted a 12.9% gain, accounting for much of this. In terms of discount movement, VinaCapital Vietnam Opportunity Fund and their core Romanian holding Fondul Proprietatea, contributed to relative performance as their discounts narrowed in absolute terms by 4.5% and 2.8% respectively.
With regard to the management of the portfolio during the transitional period (as the fund moved from being invested through funds to being directly invested), the period from January to March saw the sale of certain closed-ended holdings and redemptions of open-ended funds rotated into more liquid market proxies, including the MSCI Frontier Markets ETF, in anticipation of the upcoming tender offer, following which the remaining portfolio would migrate to a direct equity approach.
By the end of April, the fund was 52% invested in direct equities, rising to 66% by the end of May and 94% by the end of June. They say that liquidity did not prove to be an issue, but opening domestic share dealing accounts in certain countries such as Egypt, Bangladesh, Romania and Vietnam did take longer than expected. During this period, market exposure was retained through the use of legacy third-party funds and ETFs.
AFMC : Aberdeen Frontier Markets experiences teething problems as moves to direct investment