We define a frontier emerging market as any developing country beyond the 23 countries typically included in the MSCI Frontier Markets index.
EFM View
The EFM team contends that frontier Markets are at various stages of economic development, generally trailing “mainstream” emerging Markets in terms of economic and financial market reforms. These Markets are often overlooked by many foreign investors. Due to their limited integration with global financial Markets, frontier Markets have historically exhibited low correlations with other Markets, offering potential diversification benefits.
Top-down and bottom-up analysis
Given the significant variations in maturity and growth fundamentals across frontier emerging Markets, the team seeks to harness the upside potential of these equities and enhance the strategy’s performance by combining top-down country analysis with bottom-up stock selection.
A Growth Style
The team seeks companies with strong management, positive price and earnings momentum, operating in underpenetrated industries, and possessing identifiable catalysts to unlock earnings growth potential.
Risk Management
The team consistently monitors its allocations to ensure that country weightings do not exceed 20 percent of the portfolio at cost, and individual security weightings do not exceed 10 percent of the portfolio at cost. Additionally, the team periodically adjusts the strategy’s overall risk/return profile in alignment with its investment outlook.
Country allocation
The team meticulously analyzes an investment universe of over 30 countries, including MSCI Frontier countries and others, to identify improving fundamentals and compelling catalysts. They focus on countries where they believe that enhancing macroeconomic, social, and political fundamentals are not yet fully reflected in market valuations and sentiment.
Frontier-market analysis
The team meticulously analyzes an investment universe of over 30 countries, including MSCI Frontier countries and others, to identify improving fundamentals and compelling catalysts. They focus on countries where they believe that enhancing macroeconomic, social, and political fundamentals are not yet fully reflected in market valuations and sentiment.
Security selection
The team examines global economic conditions, with a specific focus on the of the United States, Japan, China, and Europe, and assesses their impact on emerging and frontier market performance.
Investment Process
1
Top-Down country allocation
Investment Process
2
Bottom-up security selection
Investable universe
The team evaluates an investment universe of approximately 1,500 companies, using liquidity analysis of trading volumes and available information on each security.
Closely followed universe
The team subsequently performs a detailed analysis of around 300 companies, including company visits, industry analysis, and consideration of index representation. Due to the limited sell-side research on frontier companies, original research and modeling by the team are essential.
Security selection
From the closely monitored universe, the team’s portfolio managers select approximately 40 to 50 stocks from companies that demonstrate quality management, a strong product line or business model with competitive advantages, robust free cash flow generation and effective utilization, a healthy balance sheet, and potential for significant earnings growth. Throughout this process, regional portfolio managers identify key themes, contribute ideas and insights, and collaborate with the team to pinpoint the best stocks for their respective regions.
