(Alliance News) - Aberdeen Frontier Markets Investment Co Ltd on Thursday said it underperformed its benchmark significantly due to its exposure to Pakistan.
At June 30, the trust's NAV per share stood at 67.60 US cents compared to 80.90 cents at the same point a year earlier, a 16% drop.
Aberdeen Frontier Markets' net assets declined 28% over the twelve months, ending the period at USD49.3 million from USD68.6 million the year before.
The trust kept its annual dividend unchanged at 2 cents.
During the period, Aberdeen Frontier Markets recorded a NAV total return of negative 14.0%, significantly behind its benchmark - the MSCI Frontier Markets Index - which actually rose 5.2% over the same period.
Chair John Whittle explained: "The portfolio's exposure to Pakistan, which is not included in the Index, accounted for a significant part of the company's underperformance, as the local market fell 36.7% in dollar terms with government policy taking months to define and the negotiations with the International Monetary Fund taking almost a year to conclude."
The trust's investment manager, Aberdeen Standard Fund Managers, continued: "The twelve months to June 2019 was another challenging period for frontier market equities. While the MSCI Frontier Markets Index achieved a gain during the period, this gain was largely attributable to surging Gulf markets, namely those of Kuwait and Bahrain. Without their contribution, the Index would have registered a decline of 4.1%.
"Indeed, outside of the Gulf and Vietnam, most other frontier markets displayed continued weak momentum, which we believe is primarily due to ongoing negative foreign fund flows and declining investor activity, specifically falling average daily traded volume."
The manager noted the trust's NAV was "broadly flat" in the second half of its financial year, with the damage being done in the first half, which saw a 15% decline.
The investment manager also noted the trust still holds an interest 6 off-benchmark companies in Pakistan, which the manager believes are "extremely undervalued yet very much established".
"While news flow continues to be mixed and liquidity conditions an ongoing challenge, we see reason to be optimistic about the near future. Firstly, from an economic as well as political point of view, many of our core markets continue to progress various structural reforms, several under the direct auspices of the IMF, which is very encouraging," the manager added.
Shares in Aberdeen Frontier Markets were 1.1% lower in London on Thursday at 45.50 pence each.
By Paul McGowan; paulmcgowan@alliancenews.com
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