Improving governance, economic liberalisation and a vibrant process of domestic capital formation are driving a secular upswing in frontier market equity values. With GDP growth well in excess of developed markets, and with a growing population of young consumers entering the formal workforce, demand for goods and services in the frontiers is set to rise steadily over the coming decades.
Voltan invests in listed equity across a universe of 60 developing countries exclusive of the MSCI Emerging Markets Index. The fund's strategy is fundamental, combining top-down country selection with intensive bottom-up securities analysis and on-site visits. Allocations are made to domestic sectors such as consumer goods, light industry and logistics which are seeing impressive demand growth from a burgeoning middle class, as well as to natural resource firms with significant upside potential.
As one of the first pure frontier markets funds, Voltan benefits from a critical first-mover advantage in less liquid markets. Many frontier markets are on a development path similar to the mainstream emerging markets 10-15 years ago, offering investors the opportunity to access similar potential upside at valuation discounts.
Voltan's frontier credit strategy invests in fixed income securities across a universe of 74 developing countries exclusive of the JP Morgan Emerging Markets Bond Index. The fund's focus is on local currency sovereign bonds and treasury bills, although corporate and hard currency debt may be included.
Due to low overall indebtedness, flexible currencies, the recent debt restructuring cycle and minimal foreign participation, the risk of a hard default on frontier local currency sovereign credit is low. High frontier yields often reflect a shortage of capital in strongly growing economies rather than default risk. With over US$700bn in face value and US$25bn in average daily trading volume, the frontier credit universe offers frontier exposure with enhanced capacity and liquidity.