Which Frontier Markets’ Managers are best?

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Which Frontier Markets’ Managers are best?

We have discussed ETFs on several occasions and provided you with what we hope is useful insight on the ETF market.  Those posts are primarily targeted towards the passive investor or the retail investor.  However, we have not adequately addressed another area of significance for our readers.  Who are the best Frontier Markets’ equity managers available to a high net-worth individual or an institutional investor? There are several hundred small players out there, but we will restrict our focus to 22 of the major Frontier Markets’ funds that are available to accredited investors.  All analysis has been conducted on a USD basis.

The list:

  • Aberdeen – Frontier Markets Equity
  • Acadian – Frontier Markets Equity
  • Ashmore Group – EM Frontier Markets Equity
  • Barings – Frontier Markets Equity
  • BlackRock – Frontier markets Fund
  • Charlemagne Capital – Global Frontier Markets Equities
  • City of London – The Frontier Markets Emerging Market Fund
  • Consilium – Frontier Equity Strategy
  • Everest Capital – Everest Capital Frontier Markets
  • Colonial First State – Frontier Global Emerging Markets Strategy
  • Forward Management – Forward Frontier Strategy Fund
  • Franklin Templeton – Templeton Frontier Markets Equity
  • GlobeFlex – GlobeFlex Frontier All Cap
  • Herding Loevner – Frontier Markets Equity
  • HSBC Global Asset Management – Frontier Markets equity
  • Investec – Investec Horizon Markets Equity
  • LGM – Frontier Markets Equities
  • Morgan Stanley – Frontier Emerging Markets Equity
  • NAM Global – Nomura Global Frontiers Fund
  • Russell – RTC Frontier Markets Fund
  • Schroders – Frontier Markets Equity
  • Silk Invest – Silk Road Frontiers
  • Silk Invest – Global Frontier Fund
  • Intereffekt Investment Funds Global Frontier High Dividend Equity

We looked at firm stability, 1-5 year returns, standard deviation, Sharpe ratio, upside capture, downside capture, firm stability and approach.  On that basis, the following managers’ performance warrants closer scrutiny.

  • Ashmore Group – EM Frontier Markets Equity (Ashmore)
  • HSBC Global Asset Management – Frontier Markets equity (HSBC)
  • Schroders – Frontier Markets Equity (Schroders)
  • Morgan Stanley – Frontier Emerging Markets Equity (MS)
  • Acadian – Frontier Markets Equity (Acadian)
  • City of London – The Frontier Markets Emerging Market Fund (London)

Please see the quartile chart below for a representation of each manager’s performance over the past five years.

Table 1: Quartile return chart for Frontier Markets Managers

FM Managers - 2015-03-07 - Returns

As you can see, over the past year, managers struggled to beat the benchmark.  The benchmark was in the 3rd percentile of performance.  Over a 3-year and 5-year period however, certain managers have consistently beaten the benchmark.  The strong performance of the benchmark has been largely driven by positive returns for Qatar and UAE, both of which were recently upgraded to the MSCI Emerging Markets Index.

The managers we have covered are relatively large, and it must be said, that the best advantage in Frontier Markets’ investing is having a small portfolio for all the illiquid names in the Frontier.  The AUM, average fees, and minimum account size is provided in the table below:

Manager

Fees AUM ($mm) Minimum Account Size ($mm)

Ashmore

150bps 36 1

HSBC

125bps 722

1

Schroders

125bps 1,618

5

MS

185bps 1,121

5

Acadian

150bps 368

1

London

125bps

31

1

The funds have relatively similar fees, Morgan Stanley being the largest outlier, charging 60bps more than the lowest fees at HSBC, Schroders, and London.  Each of these funds has exhibited incredibly attractive up-market and down-market capture ratios.  See the table below for the 3-year up-market and down-market capture ratios for each plan

Table 2: Upside and downside capture ratios

FM Managers - 2015-03-07 - Upside-Downside

In aggregate, we looked at each of the six managers listed above on a weighted basis, providing more weighting to 5-year and 3-year returns.  We looked at quantitative metrics, holdings data, manager stability, firm stability, and fees.  On that basis, we believe that the two managers below would make excellent investment options for any institutional or high net-worth investor looking to invest in Frontier Markets.

  • HSBC
  • City of London

As always, please consult your financial advisor or investment consultant for issues specifically related to your situation.  If you have any questions please let us know.

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