Q&A Series: Unlocking opportunities in Frontier Markets bonds

Aberdeen Investments is a global specialist asset manager.

Aberdeen is dedicated to helping investors achieve their financial goals in a changing world by combining their specialist knowledge, global presence in more than 25 locations, their strong relationships and investing for the long term.

Clients know Aberdeen for their expertise in credit, specialist equities and real assets. Their solutions include investing for the needs of insurers and pension providers; managed portfolios; enhanced index and quantitative investing. Aberdeen manages US$525.2 billion (31 December 2025), of which $23 billion is in Emerging Market Debt, in assets on behalf of individuals, governments, pension funds, insurers, companies, charities and foundations across 80 countries.

We are pleased to feature Aberdeen Investment’s views on their abrdn SICAV I – Frontier Markets Bond Fund. This is a distinctive strategy focused on frontier markets bonds, a segment that remains relatively under-researched by many investors. Read on for more insights into this interesting asset class!

1. What are frontier markets? How are they different from emerging or developed markets?

Frontier markets are early-stage developing economies with smaller, less liquid capital markets than mainstream emerging markets. They are typically characterised by high growth potential, improving macroeconomic trends, and limited integration with global financial systems — creating opportunities for investors seeking diversification and long-term returns.

2. It’s commonly said that frontier market investments carry higher risks. What are your thoughts?

Not always. Although many frontier issuers face higher political, liquidity, or credit risk, several have strengthened their fiscal frameworks, reduced debt burdens, or completed restructurings in recent years. Some frontier sovereigns now exhibit fundamentals similar to lower-rated emerging markets – take for example Nigeria that has in the last couple of years undertaken fiscal and monetary policy reform that has increased its ability to weather an external shock. Active management and selective country allocation are key and whilst more volatile, frontier markets have consistently outperformed mainstream Emerging Markets (EM) over the past decade.

3. What makes frontier market bonds exciting today?

As at 31 March 2026, frontier market bonds offer some of the highest yields in global fixed income, supported by improving fundamentals. Default risks have eased in recent years, and many countries are benefiting from falling inflation, currency stabilisation, and policy normalisation — all of which strengthen the investment backdrop. Because frontier markets are less correlated with mainstream asset classes and driven largely by domestic reform stories, they also provide meaningful diversification. For investors seeking high income, early-stage growth potential, and differentiated return drivers, frontier bonds present a compelling opportunity today.

Source: J.P. Morgan, Bloomberg, 31 December 2025. Indexes are unmanaged and have been provided for comparison purposes only. No fees or expenses are reflected. You cannot invest directly in an index. For illustrative purposes only. For illustrative purposes only. No assumptions regarding future performance should be made

4. How does the fund balance risks and returns within frontier bonds?

• Proprietary Risk Analytics & Oversight: Uses specialised in-house tools and independent risk teams to monitor and control risks at all levels.
• Scenario Analysis & Stress Testing: Regular assessments of how the portfolio would perform under various market shocks help identify and address vulnerabilities early.
• Strict Portfolio Limits: Caps country exposure at 10% and corporate issuer exposure at 3%; every trade is pre-checked to ensure diversification and compliance with guidelines.
• Continuous Monitoring: Real-time tracking and return attribution, with frequent reviews from senior management and independent risk teams.

5. What makes this fund stand out from other bond funds?

• Diversified Portfolios: 
• One of the most diversified strategies in the segment. 
• Targets frontier markets, a dynamic subset of emerging markets, with issuers spanning Africa, Latin America, and Asia
• A balanced mix of sovereigns, corporates, and local-currency positions for resilience across market cycles
• Performance
• Top-quartile performance over 1, 3, 5 and 10 years¹
• Proven ability to navigate stressed situations (e.g., Zambia, Ghana, Ecuador) with strong recovery outcomes

¹Source: Morningstar Direct, as of 31 Dec 2025. Quartile ranking is against the Morningstar Category EAA OE Global Emerging Markets Bond.

6. What role can the abrdn SICAV I - Frontier Markets Bond Fund play in a portfolio?

The Fund aims to provide:

• Higher income potential
• Access to early-stage growth stories
• Diversification away from global interest-rate cycles
• Idiosyncratic return drivers that complement EM and Developed Markets (DM) fixed income

Managed by an experienced team with a strong track record in risk management and credit selection, the fund is designed as a satellite allocation for investors seeking improved yield and long-term risk-adjusted returns

7. In view of the current uncertain markets, how does the fund manager position the fund and what are some of the key events or scenarios that investors should take note of?

Our diversified approach to portfolio management allows us to invest across hard, local and corporate issuers which is a unique investment proposition. For example, during risk off periods, local currency (LC) bonds tend to outperform hard currency (HC) bonds. We have increased our local currency exposure on the strategy over the last year to circa 30% as we are also cognisant of tight spreads in the HC space. This allocation to LC and corporate bonds should provide some downside protection should markets take another leg lower. We are also well balanced between oil importers and exporters which given the volatility in the oil market, is a strong position to be in.

8. Any final thoughts?

The abrdn SICAV I – Frontier Markets Bond Fund has over the past decade consistently outperformed mainstream Emerging Markets over the past decade despite higher volatility than other parts of EM. A frontier bond fund allocation offers investors exposure to assets with a low correlation to US Treasuries and developed market assets in general. This is due to the idiosyncratic nature of returns and the weak trade ties with the US for example.