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Schroders turns to tomorrow’s GEMs

Schroders is exploring the global emerging markets of tomorrow through its Luxemburg-domiciled International Selection Fund frontier markets fund.

The fund aims for growth by investing mainly in equities and equity-related securities of frontier market companies. Frontier markets are emerging markets at an early stage of development. They include countries in the Middle East such as United Arab Emirates and Kuwait; Asian countries including Bangladesh and Sri Lanka; African regions such as Nigeria and Tunisia; Croatia, Romania and other emerging European countries; and parts of South America such as Argentina.

The Schroders fund is benchmarked against the MSCI Frontier Markets Index, of which around 60 per cent is made up of Middle Eastern countries. The fund is managed by Schroders’ head of emerging market equities Allan Conway and Dubai-based Rami Sidani, who heads the Middle East and North Africa team. Both managers run the existing Schroder ISF Middle East fund. 

Schroders says there is a strong case for investing in frontier markets as they are growing rapidly, have a young population, are rich in natural resources and labour costs are competitive. The firm says frontier markets are under-owned and valuations are also attractive, while another advantage is their low correlation with other global markets.

The fund managers believe this fund will appeal to investors because many are looking for longer- term strategic allocation to emerging markets rather than short-term tactical plays.

The Middle East experience of Conway and Sidani could carry some weight with potential investors given that the region dominates the benchmark index. Early entry into these markets instead of waiting until they have become an established global emerging market increases growth potential for investors.

Investors can already access frontier markets through exchange-traded funds and shares of closed-ended funds on the secondary market such as Advance frontier markets and recently launched BlackRock frontier markets investment trust.

Open-ended funds with a global remit are still relatively few but Templeton’s global frontier markets fund, managed by Mark Mobius, reaches it’s third anniversary this year. This may appeal to some IFAs more than a new fund, but the Schroders brand should attract interest.

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