December 09, 2020 (MLN): Tundra Sustainable Frontier Fund rose by 10.3% (USD) in November compared with MSCI FMxGCC Net Total Return (USD) which rose by 7.9% and MSCI EM Net Total Return (USD) which rose by 7.6%. The excess return during the month was unusually evenly distributed on stock selections in Vietnam, Morocco, Indonesia, Bangladesh and Pakistan.
The monthly fund report, run by Swedish manager Tundra Fonder, highlighted that some positive contribution was also received from the lack of holdings in Kenya and Lebanon while negative contributions were received from Egypt and Sri Lanka, as well as lack of exposure in Slovenia and Romania.
Among individual holdings, the Bangladeshi pharmaceutical manufacturer Beximco Pharma stood out. The rise came after the company announced that it had received the import rights for one of the COVID-19 vaccines, which are expected to be available in early 2021. The newly acquired Indonesian healthcare company, Hermina Hospitals, was also one of the winners after a very strong quarterly report wherein the profit for the first nine months of the year increased by 24% (third quarter by 84%).
Together with two of its other portfolio companies, Systems Ltd (Pakistan) and Hermina Hospitals, Square Pharma was recently named one of Asia’s 200 best companies (with revenue of less than USD 1 billion).
This is again a good month for Frontier-markets. The flows to Emerging markets turning positive post-US elections, which tends to trickle down to Frontier-markets with a lag, the report underlined.
With just under a month left of 2020, the eighth year with the fund, it is noted that Frontier Fund is likely to generate absolute returns also in 2020, despite the fact that most of the markets where Tundra Ponder invested in, have so far shown negative returns during the year. The report argued that it is much more important to ensure that you invest in good companies than to “jump from tuft to tuft” between different markets.
Tundra Sustainable Frontier Fund focuses on the next generation of emerging markets such as Vietnam, Bangladesh, Sri Lanka, Pakistan, Egypt and Nigeria. Featuring strong population growth, rapid urbanization, investments in infrastructure, growing middle classes and stabilizing political environments, a vast majority of international investors are yet to discover these markets.
In 2020 so far, a large part of the fund’s excess return has come from stock selection in Pakistan and Vietnam. Pakistan is still down for the year and Vietnam marginally positive, but the fund's sub-portfolios have returned around 50% (USD) each. However, it is gratifying to see that fund has also received good contributions in Morocco and Indonesia, which are two new markets for the year.
It is hard to dispute the likelihood that growth in fund’s markets over time will be higher than in other parts of the world. However, it is equally indisputable that not all companies are able to take advantage of higher economic activity. The monthly report said that choosing the right company will continue to be a decisive factor for long-term good returns.
Since the turnaround this spring, fund’s markets have recovered solely due to local investors repositioning from the bond market to the equity market due to lower bond yields. However, the majority of its markets remain in negative territory for the year as a whole.
Tundra Sustainable Frontier Fund focuses on the next generation of emerging markets such as Vietnam, Bangladesh, Sri Lanka, Pakistan, Egypt and Nigeria. Featuring strong population growth, rapid urbanization, investments in infrastructure, growing middle classes and stabilizing political environments, a vast majority of international investors are yet to discover these markets.
While several Pakistani companies are in MSCI emerging market index, Tundra Funder has invested in many other companies that are not included in the index. Tundra searches for companies that are subject to structural growth, which means in the longer term they should grow faster than the economy as a whole because their products or services are currently under-represented in the economy. Fund finds markets that are either unexplored or abandoned. This is the reason Tundra doesn’t have any investment in India, revealed its another report with the title ‘Next generation of growth markets’.
With all investors of the world already there, it is harder to find opportunities in India for Tundra. The research report believes that the opportunity is bigger in Pakistan than in India as Pakistani companies historically have grown faster and are trading at less than half the valuations.
One sector which is overrepresented in the fund is the technology where both Pakistan and Vietnam are running fast right now to catch up with India on software development and outsourcing services.
Therefore, System limited from Pakistan held the greatest portfolio weight in the Fund at 9.7% during the month, followed by FPT Corp from Vietnam with 7.3%, the figures showed.
While one of Tundra’s favourite banks is Pakistan’s Meezan Bank Limited which has grown twice as fast as the banking sector in the last ten years and at the same time has very low credit losses. The bank has made up a 4.4% weight in Fund’s portfolio, securing the third position in the largest holding list.
It is pertinent to mention that Tundra has a 26 percent portfolio weight in to Pakistan during November.
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