MONTHLY COMMENT SUSTAINABLE FRONTIER - MAY 2026
- Tundra Fonder
- Jun 8
- 4 min read
A month in the shadow of the semiconductor sector
During May, the Fund declined by 0.1% in USD (EUR: +0.3%), compared with a gain of 1.2% for MSCI FM xGCC Net TR (USD) (EUR: +1.6%) and a remarkable 9.7% gain for MSCI EM Net TR (USD) (EUR: +10.1%). Measured in terms of portfolio contribution, Pakistan contributed the most positively (+0.8%), followed by Egypt (+0.8%) and Bangladesh (+0.6%). The largest negative contributions came from Sri Lanka (-0.9%), Indonesia (-0.5%) and Vietnam (-0.2%).
Relative to the benchmark, our overweight position in Egypt (+0.8%), our underweight position and stock selection in Kazakhstan (+0.6%), and our overweight position and stock selection in Bangladesh (+0.6%) contributed most positively. Conversely, our overweight position in Sri Lanka (- 0.8%), our underweight position in Romania (-0.6%), and our overweight position in Indonesia (- 0.5%) detracted the most from relative performance. At the individual holding level, the largest positive contribution came from the Egyptian education company CIRA (2% of the portfolio), which rose 39% after delivering a strong interim report at the end of April. The second-largest contributor was Bangladeshi BRAC Bank (6% of the portfolio), which gained 8%, also following a strong quarterly report. The largest negative contribution came from the Sri Lankan renewable energy company Windforce (3% of the portfolio), which fell 10% after reporting quarterly earnings below expectations. The second-largest detractor was Indonesian healthcare provider Hermina Hospitals (2% of the portfolio), which declined 19% amid weakness in the Indonesian equity market.
During the month, we exited our position in Nigerian Zenith Bank. Following a nearly sixfold increase from the lows reached during the crisis in early 2024, the valuation had returned to more normal levels relative to other frontier-market banks. Nigeria has enjoyed a well-deserved re-rating under the country's more reform-oriented administration. However, given Nigeria's position as a net oil exporter, we believe the market has also received an additional boost from the recent turmoil in energy markets, which we view as temporary in nature.
Negotiations between the United States and Iran continued in the aftermath of the ceasefire announced on 7 April. Despite the lack of any clear breakthrough, Brent crude oil prices fell by 12%, suggesting that markets are gradually pricing in a resolution to the disruption affecting the Strait of Hormuz. Having now experienced three months of supply disruptions, we are beginning to see clear effects across our markets. The Sri Lankan rupee weakened by 3% during the month and was, at one stage, down nearly 6%. Sri Lanka's central bank raised interest rates by 100 basis points during the month, a move Pakistan had already undertaken at the end of April. As we noted in our March monthly letter, we believe our markets are significantly better prepared for the current environment than they were during the supply disruptions associated with COVID-19 and the Russia–Ukraine conflict. The recency of those events has improved preparedness, while the broader awareness of economic vulnerabilities among populations has reduced the political cost of measures such as higher fuel prices and weaker exchange rates. As long as policymakers continue to take preventive action and adapt to evolving circumstances, we remain unconcerned about any longer-term consequences. It is also worth remembering that the turmoil in the Middle East serves as a useful reminder of the need for alternative energy sources. This transition is one from which many of our markets are well positioned to benefit, and we expect resistance to such investments to diminish over time.
Finally, a few words on the title of this month's letter. The Fund has had a weak start to 2026. While the turmoil in the Middle East has undoubtedly been an important contributing factor, we can also conclude that this has been an unusual period in several respects. The clearest example is the performance of global emerging markets (MSCI Emerging Markets), which have enjoyed a very strong start to the year. A closer examination of the rally reveals an interesting picture. Of the approximately 26% returned by MSCI Emerging Markets year-to-date, more than 25 percentage points can be attributed to the information technology sector, with the semiconductor industry serving as the dominant driver. During May alone, the technology sector accounted for more than the entire gain of the MSCI EM Index. Frontier markets – and particularly the low-income and lower-middle-income countries on which the Fund focuses – often follow their own path, largely independent of developments in larger markets. At times, this can be frustrating. From a long-term perspective, however, it remains one of the strongest arguments for our part of the world: the opportunity for genuine diversification and a return profile driven to a much lesser extent by the same forces that dominate larger markets.
Capital invested in a fund may either increase or decrease in value and it is not certain that you be able to recover all of your investment. Historical return is no guarantee of future return. The state of the origin of the Fund is Sweden. This document may only be distributed in or from Switzerland to qualified investors within the meaning of Art. 10 Para. 3,3bis and 3ter CISA. The representative in Switzerland is OpenFunds Investment Services AG, Seefeldstrasse 35, 8008 Zurich, whilst the Paying Agent is Società Bancaria Ticinese SA, Piazza Collegiata 3, 6501 Bellinzona, Switzerland. The Basic documents of the fund as well as the annual report may be obtained free of charge at the registered office of the Swiss Representative.
