Following the departure of Malik Asif, senior analyst covering financials in March 2018, we put the T. Rowe Price Frontier Markets Equity Fund “On Hold” since April 2018. We have met Oliver Bell, lead Portfolio Manager (PM) and performed a thorough analysis of the transitioning period within the analysts’ team. We have focused particularly on new coverage of Iona Dent who will take over part of Malik’s stock coverage, turnover and relative performance of financials stocks, potential addition of new resources to strengthen the fundamental analysis and stock picking.
Rationale: limited impact on the fund
Malik Asif, an analyst covering Frontier financials in the Frontier Markets Equity fund, has been appointed as an associate PM for the T. Rowe Global Emerging Markets Equity Strategy. However, he will retain much of his financials coverage within the Frontier team as he will gradually transition into his new role this year.
In the meantime, Iona Dent, associate analyst in the Frontier team, focusing on banks in the EMEA, will gradually expand her coverage to take on UAE banks from Malik Asif. She has worked very closely with Malik over the last 18 months, with a view to likely take on the Saudi banking sector next (currently 4 stocks in the portfolio). She is also expected to take coverage on Vietnam, Nigeria and South African financials but Oliver Bell is not being aggressive with this timeline. He reiterates that Malik will continue to cover much of this space until he fully moves into his new role. For now, he will continue mentoring Iona Dent to ensure a smooth transition in existing portfolio holdings.
There is no set date for this to take place as yet, but lead PM sees Iona Dent likely having a lot more coverage of the sector by Q2 2019. In addition, Eastern European financials specifically will be covered by a separate analyst. T. Rowe Price is currently looking for the right person to take this coverage on. Eastern Europe PM, Ulle Adamson, is helping the Frontier team for that coverage. He will help keep watching on these stocks until a junior analyst with the correct fit is hired. There are good pending interviews, and initially the junior analyst will likely be in a support role before developing a specialization.
The fund’s performance has not drifted materially since the announcement mid-March, performing in line with its benchmark from March to May 2018. The turnover within the financial sector has been in line with historical average with only one exited position. Lead PM eliminated a small position in Burgan Bank, a Kuwaiti bank as he expects constraints in loan growth, given the bank’s increasingly high loan-to-deposit ratio. He is also seeing build up capital pressure and in turn, payout ratios. It compelled him to sell out of the holding. To resume, Malik’s transition has not prompted any targeted sales or changes other than for fundamental reasons.
Conclusion: upgrade from Under Review to Approved
After this fund’s review, we have decided to reinstate the “Approved” rating for the fund in our Global Master List. The decision applies to all share classes of the fund.
Despite the fact that we hold Malik Asif in high regards and acknowledge his strong stock picking skills within the financial sector, reflected in solid alpha generation since inception, we think the transition period is currently well handled by Oliver Bell. Iona Dent has demonstrated her capacity to increase her workload without hampering the fund’s performance. Finally, we see as a positive outcome the hiring of a new analyst to strengthen the resources of the team, even if we would prefer a more senior or mid-level background rather than junior. The interaction with other GEM teams within T.Rowe Price is also positive to ensure the Frontier team will be able to perform in line with its investment objective, and maintain the adequate set-up.
Biography: Iona Dent, associate analyst
She has 4 years of investment experience. Prior to joining the firm in 2016, she was an associate analyst with Deutsche Bank, covering the discretionary consumer sector and previously worked in the Deutsche Bank equity derivatives structured products team. Iona Dent earned a B.A., with first class honors, in politics, philosophy and economics from the University of Oxford. She has also passed the Chartered Financial Analyst Level III exam.[/private]