Asia Frontier Capital (AFC) newsletter for the month ended December 31, 2016.

“Know what you own, and know why you own it.” – Peter Lynch, legendary investor, and past manager of the Magellan Fund at Fidelity Investments

AFC Funds Performance Summary

Asia Frontier Capital

Asia Frontier Capital

The team at Asia Frontier Capital would like to wish all of our readers a happy, healthy, and prosperous 2017!

2016 was generally considered a difficult year with many surprises, but for Asia Frontier Capital, we overcame these challenges and delivered strong performance.

The AFC Asia Frontier Fund closed the year up +22.5% compared with the MSCI Frontier Index which was down ?1.3% and the MSCI Frontier Markets Asia Index, which was up +10.5%. The fund is now up +70.4% since inception.

The Asia Frontier Capital Vietnam Fund returned +15.3% in 2016 compared with the VN-Index in USD, which increased by +13.4%. The fund is now up +63.6% since inception.

The AFC Asia Frontier Fund and AFC Vietnam Fund outperformed their benchmarks significantly as well as other major and global indices such as MSCI World, Dow Jones, S&P, DAX, FTSE, MSCI Europe, and the MSCI Emerging Markets Index.

Volatility of the AFC Asia Frontier Fund and the AFC Vietnam Fund remained low in 2016, as shown by healthy Sharpe ratios of 1.28 and 1.79 respectively.

Performance of the AFC Asia Frontier Fund and AFC Vietnam Fund versus leading indices, all in USD

Asia Frontier Capital

(Source: Bloomberg)

Both funds’ outperformance is sustainable as shown by significant outperformance since inception. The AFC Asia Frontier Fund and the AFC Vietnam outperformed their benchmarks by 9.0% p.a. and +12.2% p.a. respectively since inception.

Both funds’ low volatility and absence of losing years shows sustainable, outstanding risk management.

Asia Frontier Capital has grown up as the AFC Asia Frontier Fund and AFC Vietnam Fund now have significant track records of 4 years + 9 months, and 3 years respectively.

AFC received top accolades for its achievements in 2016:

  • AFC Asia Frontier Fund has been the top frontier fund in Citywire’s ranking (3 year performance & lowest maximum drawdown) throughout 2016.
  • AFC Vietnam Fund won an award in HFM Performance Awards Asia 2016 for the best Relative Value fund.
  • Thomas Hugger, our CEO and Fund Manager, has achieved the “AAA” ranking on Citywire this past year, which is the highest ranking in their system.

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Asia Frontier Capital increased assets under management “AUM” from USD 35.6 million to USD 49.9 million at the end of 2016, an increase of 40%.

Still a small fund management company, we are testament to the well-known view that “small managers perform best”.

Asia Frontier Capital was on the “move” in 2016: we moved into a bigger office in the same building in Hong Kong and opened a representative office in Ho Chi Minh City, Vietnam.

Asia Frontier Capital

BarclayHedge recognized us this month with their Top 10 Award. This award is based on the performance of the Asia Frontier Capital Asia Frontier Fund. We won this Top 10 Award in two categories, namely “Emerging Markets Equity – Asia”, as well as “Emerging Markets – Asia”. These accolades further confirm our outstanding abilities as a frontier fund manager, that are proven by great performance at low volatility, but are only possible because of a team of dedicated experts with thorough investment and risk management processes complemented with a superb nose for quality investments, and of course the tireless leg work of being on the ground in the countries we invest in.

All in all, 2016 was a great year for a great company with the backup of a professional setup and best-of-breed service providers such as DBS as custodian, Custom House as fund administrators, Ernst and Young as auditors, and Ogier as legal advisors. Asia Frontier Capital is well positioned to be your partner in Asia to help your or your client’s investment portfolios with return enhancement and true diversification through excellent exposure to Asian frontier markets.

In this newsletter, we will first have a look at the performance of the Asia Frontier Capital Asia Frontier Fund and the manager comments for the month. Then we review the salient events of the past year that have influenced the portfolio. Subsequently we have a more detailed look at the year ahead in the 2017 Outlook. Lastly, we publish the manager comments for the AFC Iraq Fund and the AFC Vietnam Fund. The outlook for each of the funds is positive, for different reasons, but we are confident that we will continue to perform well, and offer our investors a very valuable product that asset managers and individual investors alike can use for the purpose of performance enhancement and reduction of risk in globally diversified investment portfolios.

AFC in the Press

12-12-2016 – CNBC: How some investors are taking the ‘long view’ of Iraq despite war

Upcoming AFC Travel

If you have an interest in meeting with our team during their travels, please contact Peter de Vries at [email protected].

 Phnom Penh  1st – 20th January  Scott Osheroff
 Singapore  20th – 24th January  Scott Osheroff
 Hong Kong  23rd – 27th January  Andreas Vogelsanger
 Phnom Penh  24th January – 15th February  Scott Osheroff
 Zurich  25th January  Thomas Hugger
 Geneva  26th January  Thomas Hugger
 Basel, Geneva, Zurich  8th – 10th February  Thomas Hugger
 Ho Chi Minh City  26th February – 4th March  Ruchir Desai
 Dubai  27th February – 2th March  Thomas Hugger
 Hanoi  15th – 17th March  Ruchir Desai

 

AFC Asia Frontier Fund – Manager Comment December 2016

Asia Frontier Capital

AFC Asia Frontier Fund USD A-shares gained +3.7% in December 2016. The fund outperformed the MSCI Frontier Markets Index (+2.7%) and the MSCI World Index (+2.3%) but underperformed the MSCI Frontier Markets Asia Index which was up +4.5%. The USD A shares achieved a NAV of USD 1,704.18 which is a new all-time high (the previous high was in November 2016 with USD 1,643.60). The performance of the Asia Frontier Capital Asia Frontier Fund A-shares since inception on 31st March 2012 now stands at +70.4% versus the MSCI Frontier Markets Asia Index which is up +14.2% and MSCI Frontier Index (+2.8%) during the same time period. The fund’s annualized performance since inception is +11.9% p.a. while its YTD performance stands at +22.5%. The broad diversification of the fund’s portfolio has resulted in lower risk with an annualised volatility of 9.19%, a Sharpe ratio of 1.28 and a correlation of the fund versus the MSCI World Index USD of 0.34, all based on monthly observations since inception.

The year ended with another month of positive performance led by Pakistan and Mongolia. Pakistani equities continued their stellar run during the year and the fund’s Pakistani holdings saw a good all-round performance during the month with gains being led by a pharmaceutical company, an oil & gas company, and a cement company. In Mongolia, gains were led by a junior copper producer, a construction material company, a coal producer and a junior oil & gas producer. Besides Pakistan and Mongolia, Bangladesh also aided with performance during the month, with gains led by a consumer food

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