BlackRock Frontiers Investment Trust optimistic over the long-term

BlackRock Frontiers Investment Trust plc (LON:BRFI) has provided its latest portfolio update.

All information is at 30 September 2022 and unaudited.

You can discover more about the BlackRock Frontiers Investment Trust at blackrock.com/uk/brfi

Performance at month end with net income reinvested.

One
 month
%
Three
months
%
One
 year
%
Three
 years
%
Five
 years
%
Since 
Launch*
%
Sterling:
Share price-4.86.58.710.46.195.6
Net asset value-4.17.07.720.520.4122.6
Benchmark (NR)**-3.55.912.09.922.487.5
MSCI Frontiers Index (NR)-5.41.8-9.66.212.974.2
MSCI Emerging Markets Index (NR)-8.0-3.8-13.23.79.746.7
US Dollars:
Share price-8.7-2.1-10.00.0-11.740.6
Net asset value-8.0-1.7-10.99.10.359.8
Benchmark (NR)**-7.4-2.6-7.3-0.51.835.3
MSCI Frontiers Index (NR)-9.3-6.5-25.2-3.8-6.024.7
MSCI Emerging Markets Index (NR)-11.7-11.6-28.1-6.1-8.75.1

Sources: BlackRock and Standard & Poor’s Micropal

* 17 December 2010.

** The Company’s benchmark changed from MSCI Frontier Markets Index to MSCI Emerging ex Selected Countries + Frontier Markets + Saudi Arabia Index (net total return, USD) effective 1/4/2018. 

At month end
US Dollar
Net asset value – capital only:156.15c
Net asset value – cum income:159.85c
Sterling:
Net asset value – capital only:139.88p
Net asset value – cum income:143.19p
Share price:127.75p
Total assets (including income):£271.1m
Discount to cum-income NAV:10.8%
Gearing:nil
Gearing range (as a % of gross assets):0-20%
Net yield*:4.2%
Ordinary shares in issue**:189,325,748
Ongoing charges***:1.4%
Ongoing charges plus taxation and performance fee****:2.4%

*The Company’s yield based on dividends announced in the last 12 months as at the date of the release of this announcement is 4.2% and includes the 2021 final dividend of 4.25 cents per share, declared on 1 December 2021, and paid to shareholders on 11 February 2022. Also included is the 2022 interim dividend of 2.75 cents per share, declared on 26 May 2022, and paid to shareholders on 24 June 2022.

** Excluding 52,497,053 ordinary shares held in treasury.

***The Company’s ongoing charges are calculated as a percentage of average daily net assets and using the management fee and all other operating expenses excluding performance fees, finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain non-recurring items for the year ended 30 September 2021.

**** The Company’s ongoing charges are calculated as a percentage of average daily net assets and using the management fee and all other operating expenses and including performance fees but excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain non-recurring items for the year ended 30 September 2021.

Sector
Analysis
Gross market value as a % of net assetsCountry
Analysis
Gross market value as a % of net assets
Financials40.9Saudi Arabia23.2
Materials12.0Indonesia13.2
Consumer Discretionary10.3Malaysia8.5
Industrials9.4Kazakhstan7.3
Consumer Staples8.5Vietnam7.0
Energy7.9United Arab Emirates6.7
Information Technology4.9Chile5.7
Real Estate4.7Thailand5.4
Communication Services4.6Qatar4.6
Health Care1.7Greece4.3
Utilities1.3Hungary3.7
—–Poland3.1
106.2Romania2.2
—–Philippines1.9
Short positions-5.2Panama1.9
=====Egypt1.8
Peru1.5
Kuwait1.5
Colombia1.4
Kenya0.9
Ukraine0.4
   —–
Total106.2
—–
Short positions-5.2
=====

*reflects gross market exposure from contracts for difference(CFDs).

Market Exposure 

31.10
 2021
  %
30.11
 2021
  %
31.12
 2021
  %
31.01
 2022
  %
28.02
 2022
  %
31.03
 2022
   %
30.04
 2022
  %
31.05
 2022
  %
30.06
 2022
  %
31.07
 2022
  %
31.08
 2022
  %
30.09
 2022
  %
Long110.6106.3104.3108.4110.7111.1110.6107.9106.1107.3107.3106.2
Short 0.4 0.4 1.0 1.9 3.3 2.3 1.8 4.7 4.6 6.2 5.3 5.2
Gross111.0106.7105.3110.3114.0113.4112.4112.6110.7113.5112.6111.4
Net110.2105.9103.3106.5107.4108.8108.8103.2101.5101.1102.0101.0

Ten Largest Investments

CompanyCountry of RiskGross market value as a % of net assets
Emaar PropertiesUnited Arab Emirates4.7
Saudi National BankSaudi Arabia4.6
Bank RakyatIndonesia4.6
JSC KaspiKazakhstan3.4
Abdullah Al Othaim MarketsSaudi Arabia3.2
Qatar Gas TransportQatar3.1
PKO Bank PolskiPoland3.1
Saudi TelecomSaudi Arabia3.0
Genting MalaysiaMalaysia3.0
Saudi British BankSaudi Arabia2.6

Commenting on the markets, Sam Vecht and Emily Fletcher, representing the Investment Manager noted:

The Company’s NAV returned -8.0% versus its benchmark the MSCI Emerging ex Selected Countries + Frontier Markets + Saudi Arabia Index (“Benchmark Index”), which fell by 7.4% in September. For reference, the MSCI Emerging Markets Index ended the month down 11.7% and the MSCI Frontier Markets Index fell 9.3% over the same period (all performance figures are on a US Dollar basis with net income reinvested).

Smaller markets fared better than the MSCI EM index, which was dragged down by index heavyweights. In China, the economic data continues to look weak and adherence to zero covid policy has negated the benefits from looser monetary policy. The trade sensitive markets of Taiwan and Korea were also challenged given the global backdrop. In our universe, ASEAN (the Association of Southeast Asian Nations) fared relatively well (Indonesia -0.7%, Thailand -6.3%), padded by a post-pandemic tourism revival. The notable exception was the Philippines (-17.6%) which saw a steep decline due to a tumbling peso. The Middle East came under pressure this month from lower energy prices, while Eastern Europe (Romania -18%, Hungary -15%, Poland -13%, Greece -10%) continues to grapple with ongoing EU-Russia tensions.

We visited Hungary and Poland in September for research trips. Both countries are struggling with significant inflationary pressures which are likely to persist for some time. However, in marked contrast to larger European countries, we have already seen substantial budget spending cuts and rises in interest rates (5.75% in Poland and 12.4% in Hungary since summer 2021). Markets in both countries are trading at extremely low valuations. The MSCI index in Poland is at its lowest price ever recorded.  Given these valuations, which we think have factored already some of the challenges, we topped up Polish bank exposure through the month, adding to PKO where valuations are at multi-year lows.

The Company benefited from its exposure to the Middle East. Due to their large oil and gas exports, these countries have seen record high fiscal and current account surpluses during the year. This has allowed governments to protect their populations from the “cost of living crisis” that we are seeing elsewhere in the world. Qatar Gas Transport Co (Nakilat) rallied on the hope that the company will win further contracts as the Qatar North Field is expanded. The sudden leaks in two Russian gas pipelines under the Baltic Sea sent gas prices soaring. Bank Rakyat Indonesia has also continued to do well, net interest margins have expanded with rising interest rates, whilst loan demand has continued to accelerate.  On the other side, Romanian bank BRD was the biggest detractor, as Romania saw an acceleration in inflation expectations.  Hungarian budget airline, Wizz Air, was among the worst performers as the stock was impacted by recessionary fears and rising fuel costs with OPEC+ recently agreeing to cut production from August 2022 levels by 2 million, representing around 2% of global oil supply.

We made few changes to the portfolio in September. We initiated Indonesian bank Bank Mandiri where we expect EPS upgrades. We took profits across a few holdings including Air Arabia which has rallied strongly through the year buoyed by strong tourist travel to the UAE.

We see marked contrast in the monetary and fiscal policy decisions that have been taken in small emerging/frontier and developed markets during 2022 and find significant value in currencies and equity markets across these smaller countries. We are optimistic over the long-term in our under-researched investment universe which should allow for compelling alpha opportunities.

Sources:

1BlackRock as at 30 September 2022

2MSCI as at 30 September 2022

25 October 2022

You can discover more about the BlackRock Frontiers Investment Trust at blackrock.com/uk/brfi

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BlackRock Frontiers Investment Trust optimistic over the long-term

BlackRock Frontiers Investment Trust plc (LON:BRFI) has announced its latest portfolio update. All information is at 28 February 2023 and unaudited. You can discover more about the BlackRock Frontiers Investment Trust at blackrock.com/uk/brfi Performance at month end with net