Harding Loevner's Frontier Emerging Markets Equity composite posted a 5.2% return before fees in the third quarter of 2025. This performance, however, trailed the MSCI Frontier Emerging Markets Index, which saw a more substantial gain of 12.4% over the same period. Despite this quarterly underperformance relative to the benchmark, the broader picture for Frontier Emerging Markets (FEMs) has been remarkably positive throughout the year, with a cumulative 33% increase by the end of the third quarter, signaling one of the strongest growth phases experienced in the last ten years. This robust year-to-date performance underscores the dynamic nature of these markets, even as specific sectors face headwinds.
The third quarter of 2025 presented a mixed bag for the Harding Loevner Frontier Emerging Markets Equity composite. While certain sectors delivered strong positive contributions, others weighed down overall performance. Specifically, the Industrials and Energy sectors demonstrated commendable strength, reflecting perhaps global demand shifts or unique regional economic catalysts. However, these positive movements were not sufficient to offset the drag from the Financials and Real Estate sectors, which experienced weaker returns during the quarter. This divergence highlights the complexities of investing in frontier and emerging markets, where sector-specific dynamics can significantly impact portfolio outcomes.
The strong year-to-date performance of FEMs, despite the third quarter's relative underperformance for Harding Loevner, points to underlying resilience and growth potential within these often-overlooked markets. Factors contributing to this decade-best performance could include improving macroeconomic conditions, increased foreign direct investment, or specific policy reforms in various frontier nations. Such markets are characterized by higher risk but also potentially higher reward, driven by factors like nascent industrialization, demographic advantages, and evolving regulatory environments. Understanding these nuances is crucial for investors navigating the diverse landscape of frontier and emerging economies.
In summary, while Harding Loevner's Frontier Emerging Markets Equity composite lagged its benchmark in the third quarter of 2025 with a 5.2% gain against the MSCI Frontier Emerging Markets Index's 12.4%, the year-to-date performance for FEMs remained robust, marking a 33% increase. The quarter saw positive contributions from Industrials and Energy sectors, though these were partially offset by weaker showings in Financials and Real Estate.