The market

MSCI Frontier Markets xGCC Net (SEK) fell 2.8% during the month, compared to MSCI Emerging Markets Net (SEK), which rose 2.1%. In local currencies, the asset class actually rose almost 1% but as the SEK strengthened closer to 4% against the USD the month as a whole closed in negative territory. Among individual constituent markets, Argentina was the main negative contributor with a decline of 10% in SEK (down close to 7% in USD). Romania excelled with an increase of 6.6% (10% in USD). Nigeria rose by 5.1% (9% in USD). However, on August 1st, MSCI implemented the anticipated adjustment of the Nigerian currency (see previous monthly letters). Tundra implemented this change already in early May. The adjustment will shave off 2% from the August index return.

In general, we note positive inflows to the frontier markets. Calculated in USD, MSCI Frontier Markets xGCC Net has risen over 20% this year recovering some of the capital that was redeemed from the asset class in 2015 and 2016. For European investors, the asset class has shown a more modest development during the year with an increase of nearly 8%.

The fund

The fund fell 4.5% during the month, which was worse than the market as a whole. We lost mainly due to the performance of our overweights in Egypt, Vietnam and Pakistan, however our underweight in Argentina partially mitigated the relative loss.

It has been a tough year to date, where we are trailing the index during the first seven months of 2017, as compared to previous years, where the fund outperformed the index four years in a row including 2013 when the fund was launched. Our positions in Pakistan and Egypt have not paid off so far this year. The lack of positions in the smaller European frontier markets, which in the short term in a year when the EUR and the SEK have strengthened nearly 10% against the USD, has had a negative impact on performance. Historically our strength lies in stock selection and this strategy has continued to work very well.

Stock selection in Nigeria, Vietnam, Sri Lanka and Kazakhstan in particular, has been strong. We hope that somewhat more normal market circumstances during the last five months of the year will be enough for this strength to result in another year of clear value addition to our unitholders.

During July, we exited our position in Vietnamese Vinamilk, we added two new Egyptian holdings (a steel company and a bank), a new Nigerian bank and we added to our position in the Pakistani IT-company Systems Ltd after a too steep correction.