The three key questions for all investors: Why this strategy? Why now? Why pick it over its peers?
The potential for high growth from mispriced equity markets may be the abiding reason investors look towards frontier markets but, for Coeli Asset Management portfolio manager James Bannan, the ‘Why invest now?’ question comes down to a combination of strong hard-currency growth and historically cheap valuations.
“Frontier markets is a niche asset class that is not on everyone’s radar – and that is exactly why investors should be looking at it,” he says in the above WealthWhys video. “From Vietnam in the East to Argentina in the West, you have a group of the fastest-growing countries in the world.
“They are generally countries with large, rapidly-growing populations of people who are very, very poor but they are becoming less poor – and this transition really leads to a very interesting structural growth story in these markets.
We believe exceptional investment ideas only come around every few years and, when you find one, you should put an appropriate weight into it.”
“You also have equity markets that are the least developed – both in terms of liquidity and foreign investor appreciation – and that really gives you a unique opportunity, because it means these are also the least efficiently-priced markets in the world.”
As for why investors should be considering frontier markets now, Bannan argues: “It is the combination of extremely strong hard-currency growth and attractive valuations that make the timing particularly fortuitous at the moment.”
High cashflow returns
Finally, why should investors choose this strategy over its peers? “Our approach is to be long-term holders of high-quality companies,” Bannan replies. “These are companies that would generate high cashflow returns on invested capital over the next 10 to 20 years. They are also companies with a very domestic focus – so we are really trying to tap into the structural growth that is happening in these markets.”
Bannan and his team also run a very concentrated portfolio of some 30 companies. “That is a key differentiator to our competitors,” he adds. “We believe exceptional investment ideas only come around every few years and, when you find one, you should put an appropriate weight into it. So, we do not have a long tail of ‘good but not exceptional’ companies – we are only focused on the best companies within our markets.”
James Bannan, portfolio manager at Coeli Asset Management
A full transcript of this interview can be found after this box while you can view the whole video by clicking on the picture above. To jump to a specific question, just click on the relevant timecode:
00.00: Why should investors be allocating to frontier markets in general?
01.29: Why should investors be considering an allocation now?
02.43: Why should investors choose this strategy over its peers?
Why should investors be allocating to frontier markets in general?
Frontier markets is a niche asset class that is made up of countries ranging from Vietnam in the East to Argentina in the West. So it is an asset class that is not on everyone’s radar – and that is exactly the reason why one should be looking at frontier markets.
In collection, you have a group of countries that are the fastest-growing countries in the world. They are generally countries with large, rapidly-growing populations of people who are very, very poor but they are becoming less poor – and this transition really leads to a very interesting structural growth story in these markets.
So, you have the highest-growing economies in the world and then you also have equity markets that are the least developed. That is to say, they are least developed both in terms of liquidity and in terms of foreign investor appreciation – and that really gives you a unique opportunity, because it means these are also the least efficiently-priced markets in the world.
Essentially, then, frontier markets comprise the quickest growth economies in the world with equity markets that are the most mispriced out there – and this combination leads to pretty exceptional returns over the long term.
Why should investors be considering an allocation now?
We think it is a very attractive time to invest in frontier markets at the moment. Going back to the structural growth story I was talking about in frontier markets, you can find companies that are generating exceptional growth in US dollar terms. As an example, our portfolio has generated 16% per annum earnings-per-share growth in US dollars. What that means is that our portfolio in 2025 earned around four and a half times the level of earnings they generated in 2015 – so this is real money growth tapping into the top-down story I mentioned before.
The other element in the ‘Why now?’ is the valuation story – for whatever reason, frontier markets are extremely cheap. If you look at our portfolio, it is trading at the very bottom of its historical trading range and, relative to all other indices, there is a record discount the fund is trading at – compared with, say, the MSCI Emerging Markets or the S&P500.
So it is this combination of extremely strong hard-currency growth and attractive valuations that make the timing particularly fortuitous at the moment.
Why should investors choose this strategy over its peers?
There are a lot of ways to approach investing in all markets – and frontier markets is no different. Our approach is quite straightforward. First of all, we are only focused on frontier markets – if you look at competitors, they are focused a lot more on smaller emerging markets.
But our approach, generally speaking, is to be long-term holders of high-quality companies. These are companies that would generate high cashflow returns on invested capital over the next 10 to 20 years. They are also companies with a very domestic focus – so we are really trying to tap into the structural growth that is happening in these markets, as these large populations go from very, very poor to a little bit less poor.
And we also run a very concentrated portfolio – we have around 30 companies in our portfolio – and that is a key differentiator to our competitors. We believe that exceptional investment ideas only come around every few years and, when you find those exceptional investment ideas, you should put an appropriate weight into it. So, we do not have a long tail of ‘good but not exceptional’ companies – we are only focused on the best companies within our markets.
