Against a backdrop of heightened geopolitical volatility, the Allan Gray Frontier Markets Equity Fund delivered a resilient first‑quarter performance. With global uncertainty high, portfolio manager Varshan Maharaj reflects on its performance and positioning, and explains why preparation, not prediction, remains key to guiding investment decisions.
During the first quarter, the Frontier Markets Equity Fund (the Fund) returned 3.8% (in US$) and the MSCI Frontier Emerging Markets Index returned 2.6% (in US$). Notable contributors to the Fund’s performance over the quarter included Seplat Energy, NAC Kazatomprom and Zenith Bank. Zimplats was a notable detractor.
The war in Iran is dominating headlines. There is a lot of volatility in the markets as significant new developments come to light daily. While nobody can predict the outcomes of these developments, everybody is able to prepare for market changes. We focus on the latter, maintaining a watch list of attractive businesses and investing when prices drop sufficiently below our fair value estimates. Focusing on value has proven to be a better strategy than trying to predict outcomes that are often counterintuitive. We have previously written about how this played out in favour of Georgian stocks following Russia’s invasion of Ukraine in 2022.
The Iran war has led to supply shocks in the oil and gas market, affecting the prices of global assets across the board, and in particular, energy-related and precious metals stocks. With large portions of energy supply potentially being removed from the market, we have seen spikes in the oil price. This has provided additional support to energy-related holdings, such as Seplat Energy, in March. On the opposite end of the spectrum, we have witnessed large sell-offs in precious metals stocks, which were large winners in 2025. Part of the reason for the sell-off has been the change in expectations from interest rate cuts to rate hikes in many nations, due to the inflationary impact of higher oil prices.
Seplat Energy has produced a total return in US dollars of 89% over one year and 558% over five years (not annualised). Pre-war, the consensus view was for prolonged low oil prices, given expected oversupply. This has changed sharply in recent months, with security of supply now coming into question. Whenever large portions of supply of a commodity are disrupted, one observes spikes in pricing. These can endure for a long time while supply normalises. The forward prices of oil still reflect rapid normalisation. There is a material risk that it may take significantly longer than expected to resolve supply issues in the oil market. Seplat Energy provides a good hedge to this and trades on seven times our estimate of normal free cash flow.
NAC Kazatomprom has also benefited as more countries turn increasingly positive on nuclear energy as a safe and cost-effective source of power. Along with an improving demand outlook, the major producers have remained disciplined on supply. Combined, these factors form an attractive supply–demand outlook for uranium, which has reflected in the uranium price, as well as the share price of NAC Kazatomprom. This provided a total return of 152% over one year and 326% over five years (not annualised) in US dollars.
AngloGold Ashanti and Zimplats represent the Fund’s precious metals holdings. Many of the bullish drivers for the gold price remain intact, including higher inflation, economic uncertainty and geopolitical conflict. When nations lose trust in the currency and each other’s bonds, gold becomes the ultimate reserve asset. This has been reflected in the large increase in central bank buying of gold since the US froze the Central Bank of the Russian Federation’s US dollar reserves in 2022. We also still see value in Zimplats, which currently trades on seven times our normal free cash flow estimate.
We are expanding our investment universe and have been researching new markets for investment ideas. The much larger universe is an exciting development and will provide an opportunity to find more high-quality businesses trading at attractive prices.
There continues to be little interest in the frontier universe among global investors. This is a contributing factor to the large disparity in valuation multiples between companies in the frontier universe and comparable companies in developed markets. We will continue to use this backdrop to buy good businesses at discount prices.