BlackRock Frontiers Investment Trust plc (LON:BRFI) has announced its annual results announcement for the year ended 30 September 2023.
Performance record
The Company’s financial statements are presented in US Dollars. The Company’s shares are listed on the London Stock Exchange and quoted in British Pound Sterling. The British Pound Sterling amounts for performance returns shown below are presented for convenience. The difference in performance returns measured in US Dollars and in British Pound Sterling reflects the change in the value of British Pound Sterling versus the US Dollar over the period.
| As at 30 September 2023 | As at 30 September 2022 | | |
| US Dollar | |||
| Net assets (US$’000)1 | 363,598 | 302,656 | |
| Net asset value per ordinary share (cents) | 192.05 | 159.86 | |
| Ordinary share price (mid-market)2 (cents) | 175.76 | 142.61 | |
| ————— | ————— | ||
| British Pound Sterling | |||
| Net assets (£’000)1,2 | 297,897 | 271,124 | |
| Net asset value per ordinary share2 (pence) | 157.35 | 143.21 | |
| Ordinary share price (mid-market) (pence) | 144.00 | 127.75 | |
| Discount3 | 8.5% | 10.8% | |
| ========= | ========= |
Performance | For the year ended 30 September 2023 % | For the year ended 30 September 2022 % | Since inception4 % |
| US Dollar | |||
| Net asset value per share (with dividends reinvested)3 | +25.1 | -10.9 | +100.0 |
| Benchmark Index (NR)5,6 | +5.0 | -7.3 | +42.1 |
| MSCI Frontier Markets Index (NR)6 | +6.5 | -25.2 | +32.8 |
| MSCI Emerging Markets Index (NR)6 | +11.7 | -28.1 | +17.3 |
| Ordinary share price (with dividends reinvested)3 | +28.8 | -10.0 | +81.1 |
| ————— | ————— | ————— | |
| British Pound Sterling | |||
| Net asset value per share (with dividends reinvested)3 | +14.3 | +7.7 | +154.6 |
| Benchmark Index (NR)5,6 | -3.9 | +12.0 | +80.1 |
| MSCI Frontier Markets Index (NR)6 | -2.6 | -9.6 | +69.6 |
| MSCI Emerging Markets Index (NR)6 | +2.2 | -13.2 | +49.9 |
| Ordinary share price (with dividends reinvested)3 | +17.7 | +8.7 | +130.2 |
| ========= | ========= | ========= |
1 The change in net assets reflects dividends paid and portfolio movements during the year.
2 Based on an exchange rate of US$1.2206 to £1 at 30 September 2023 and US$1.1163 to £1 at 30 September 2022.
3 Alternative Performance Measures, see Glossary in the Company’s Annual Report for the year ended 30 September 2023.
4 The Company was incorporated on 15 October 2010 and its shares were admitted to trading on the London Stock Exchange on 17 December 2010.
5 With effect from 1 April 2018, the Benchmark Index changed to the MSCI Emerging Markets Index ex Selected Countries + MSCI Frontier Markets Index + MSCI Saudi Arabia Index. Prior to 1 April 2018, the Benchmark Index was the MSCI Frontier Markets Index. The performance returns of the Benchmark Index since inception have been blended to reflect this change.
6 Net return (NR) indices calculate the reinvestment of dividends net of withholding taxes.
Sources: BlackRock and Datastream.
You can discover more about the BlackRock Frontiers Investment Trust at blackrock.com/uk/brfi
Chairman’s statement
Overview
Over the year to 30 September 2023, your Company’s Net Asset Value per share produced a total return of +25.1%, compared to an increase in the Benchmark Index of +5.0%, resulting in an outperformance of 20.1%1.
For Sterling based shareholders, the equivalent return for the year was +14.3%, with the Benchmark Index returning -3.9%, representing an outperformance of 18.2%1.
Since the financial year end, and up to close of business on 27 November 2023, the Company’s NAV has increased by 0.6% compared with an increase in the Benchmark Index of 0.9% over the same period1. For Sterling based shareholders, the equivalent return for the financial year to date was -2.6%, with the Benchmark Index returning -2.3%, representing an underperformance of 0.3%1.
Our portfolio managers provide a detailed description of the key contributors and detractors to performance during the period, insight into the positioning of the portfolio and their views on the outlook for the forthcoming year in their report which follows.
I am also pleased to be able to tell you that the Company won the Investment Week Investment Company of the Year Award 2023 – Global Emerging Markets category for the second year in a row. The Company also won the AJ Bell Investment Award 2023 in the Emerging Markets Equity – Active category and the CityWire Investment Trust Award 2023 – Global Emerging Markets Equities Trust. I am sure shareholders will join me in congratulating the investment team on these achievements.
Revenue return and dividends
The Company’s revenue return per share for the year amounted to 8.38 cents (2022: 6.35 cents). The Directors are recommending the payment of a final dividend of 4.90 cents per ordinary share (2022: 4.25 cents) in respect of the year ended 30 September 2023. Together with the interim dividend of 3.10 cents per share (2022: 2.75 cents), this represents a total of 8.00 cents per share (2022: 7.00 cents).
Subject to shareholder approval, this dividend will be paid on 14 February 2024 to shareholders on the register at close of business on 5 January 2024. The ex-dividend date will be 4 January 2024. The Company does not have a policy of actively targeting income; nevertheless, this return represents an attractive yield of 4.6% (please see the Glossary in the Company’s Annual Report for the year ended 30 September 2023 for the inputs to the yield calculation).
Fees and charges
Following an impressive outperformance of the Benchmark Index during the financial year, the Manager has generated a performance fee of US$8.27m for the year ending 30 September 2023. As per best practice, the performance fee structure is subject to a maximum cap and a high water mark. This mechanism requires the Manager to catch up any previous cumulative underperformance against the benchmark before a performance fee can be generated. Further details of the Company’s costs and charges can be found in note 4 and in the Glossary in the Company’s Annual Report for the year ended 30 September 2023.
Share capital management
For the year under review, the Company’s ordinary shares have traded at an average discount to NAV of 8.4% and were trading at a discount of 7.3% on a cum-income basis at 27 November 2023, the latest practicable date prior to the issue of this report.
The Directors recognise the importance to investors of ensuring that the Company’s share price should not trade at a significant discount or premium to NAV. Accordingly, the Directors monitor the share price closely and will consider the issue of shares at a premium or the repurchase at a discount to help balance demand and supply in the market. The Board monitors the Company’s discount to NAV closely and receives regular updates from the Manager and our corporate broker, Winterflood Securities. In the Board’s opinion it is important to consider the discount in the context of the wider market conditions, with investor sentiment and discounts being influenced by various external factors, including the war in Ukraine, the conflict in the Middle East and prolonged higher rates of inflation. Against this backdrop, the average discount for the investment company sector as a whole has recently exceeded 16%, a level not seen since the global financial crisis of 2008. The Company’s discount compares favourably to this, as it does to the average discount of the Global Emerging Markets sector average which stood at 9.1% on 27 November 2023, the latest practicable date prior to the publication of this report. Therefore, the Board decided not to buy back any of its shares during the financial year. The Company also provides a five yearly opportunity for shareholders to realise the value of their ordinary shares at the applicable NAV less costs. The next such opportunity will occur in early 2026.
The Board believes that the best way to encourage a narrowing of the discount at which the Company’s shares trade is to continue to deliver strong investment performance and to communicate the unique attractiveness of our investment proposition to both existing and new shareholders.
As at 30 September 2023, the Company had 189,325,748 ordinary shares in issue, excluding 52,497,053 shares held in treasury. The Board will consider whether it is in shareholders’ interests to continue to hold shares in treasury or whether they should be cancelled. No shares were issued or bought back during the year under review or post year end from 1 October 2023 up to the date of this report.
The Directors have been granted the authority by shareholders to buy back up to 14.99% of the Company’s issued share capital (excluding any shares held in treasury) and also to issue or sell from treasury on a non-pre-emptive basis up to 10% of the Company’s issued share capital. Both authorities expire on the conclusion of the forthcoming Annual General Meeting (AGM) to be held on Tuesday, 6 February 2024, at which time resolutions will be put to shareholders seeking a renewal of these powers. Further information can be found in the Directors’ Report in the Company’s Annual Report for the year ended 30 September 2023.
Consolidation opportunities
The Board is aware of an ongoing trend of consolidation within the wealth management industry and the implications this may have on smaller investment companies given the demand for larger, more liquid investment vehicles. With net assets of £290million as at 27 November 2023, the Board believes the Company is in a good position in this regard. Further, the Board believes the Company’s strong long term performance record, relatively narrow discount and attractive dividend should position it well to act as a consolidator. As part of the Board’s ongoing strategic considerations, and against the backdrop of a number of mergers amongst closed-ended investment companies in recent years, the Board regularly considers possible consolidation opportunities that might enhance value for the Company’s shareholders. The Board will always continue to consider whether any transaction would be in shareholders’ long-term interests.
Gearing
One of the advantages of the investment trust structure is that the Company can use gearing with the objective of increasing portfolio returns over the longer term. The Company utilised its ability to gear the portfolio through its CFD exposure during the year. As at the year end, net gearing stood at 12.0%. This is a higher level than in the recent past, reflecting our portfolio managers’ positive view on the smaller emerging and frontier markets opportunity set where they see value in both currencies and equity markets across our investment universe.
Board composition
On 1 February 2023 the Board announced that, as part of its ongoing succession plans, and having each served for a tenure of in excess of 12 years, both Sarmad Zok and I would step down from the Board at the next AGM to be held in February 2024. In accordance with our succession plans, the Board is currently undertaking a process to identify a replacement for Sarmad whose in-depth knowledge and on the ground insights into the culture, customs and business practices in the Frontier Markets have been invaluable. The Board intends to announce the new Board appointment in due course.
As announced in the Half-Yearly Report earlier this year, it has been agreed that Katrina Hart, our current Senior Independent Director, will succeed me as Chairman upon my retirement from the Board at the AGM in 2024. Katrina possesses a great deal of investment trust specific expertise and asset management experience, both through her executive career in investment banking and equities research and in her current involvement with a number of complementary boards. It has also been agreed that Elisabeth Airey, also a serving Director, will succeed Katrina as our Senior Independent Director.
Further information on their respective backgrounds and experience can be found in the Company’s Annual Report for the year ended 30 September 2023.
As at 30 September 2023 the Board consisted of six independent non-executive Directors. As part of its succession plan the Board regularly considers its composition to ensure that a suitable balance of skills, knowledge, experience, independence and diversity is achieved to enable the Board to effectively discharge its duties. The Directors submit themselves for re-election annually and therefore all Directors, other than myself and Sarmad Zok, will stand for re-election at the forthcoming AGM.
Corporate governance
The Board takes its governance responsibilities very seriously and follows best practice requirements as closely as possible. The UK Code of Corporate Governance (the UK Code) requires enhanced disclosure setting out how we, as Directors, have fulfilled our duties in taking into account the wider interests of stakeholders in promoting the success of the Company.
As it does each year, and as required by the Corporate Governance Code, the Company undertook a comprehensive Board evaluation this year. The overall conclusion was very positive in terms of the effectiveness of the Board, and the skills, expertise and commitment of the Directors. The combination of our succession plan and structured search and selection process through which the Board identifies new appointments and the annual Board evaluation of their ongoing performance means that the Board remains confident that each Director is discharging their role effectively.
The Board is also cognisant of the risk of “overboarding” and has considered the time commitment required by the Directors’ other roles, taking into account their nature and complexity. The Board reviews this information annually, for each Director, including my own as Chairman of the Board, to ensure that all Directors have sufficient capacity to carry out their role effectively. Before recommending a Director for re-election, their independence, attendance record and ongoing commitment to the affairs of the Company are also considered.
Board diversity
I am pleased to report that the Board is compliant with the recommendations of the Parker Review and the FTSE Women Leaders Review and, at the date of this report, we have a 50:50 gender ratio. For the first time this year, and in accordance with the Listing Rules, we have also disclosed the ethnicity of the Board and our policy on matters of diversity. The disclosure can be found in the Company’s Annual Report for the year ended 30 September 2023.
Environmental, Social and Governance (ESG) considerations
Material ESG issues can present both opportunities and risks to long-term investment performance. While the Company does not have an ESG investment objective or exclude investments based only on ESG criteria, these ethical and sustainability issues are a consideration of the Company, and your Board is committed to a diligent oversight of the activities of our Investment Manager in these areas. The frontier markets in which the Company can invest are home to over 3 billion of the world’s population and through our investments we bring much needed capital to markets largely overlooked by developed world investors.
We believe that the companies in which the portfolio is invested should operate within a healthy ecosystem of all their stakeholders whether these be shareholders, employees, customers, regulators or suppliers and that this can aid the sustainability of long-term returns. Further information can be found in the Company’s Annual Report for the year ended 30 September 2023.
Annual general meeting
I am pleased to report that it is the Board’s intention that this year’s AGM will be held in person at 12:30 p.m. on Tuesday, 6 February 2024 at the offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL.
The Board very much looks forward to meeting shareholders and answering any questions you may have on the day. We hope you can attend this year’s AGM.
Shareholder communication
We appreciate how important access to regular information is to our shareholders. To supplement our Company website, we continue to offer shareholders the ability to sign up to the Trust Matters newsletter which includes information on the Company as well as news, views and insights. Further information on how to sign up is included on the inside cover of this report.
Outlook
While developed market economies have been experiencing heightened inflation, slowing growth and the spectre of recession, by contrast, many of the countries in our frontier market universe are in the growth phase of their economies. Moreover, a significant proportion of frontier markets are further along the curve in their monetary tightening cycle, having raised interest rates earlier, and in many cases have now already cut interest rates. Our portfolio managers believe that this represents a more stable and benign environment for growth. Moreover, this lack of correlation with developed market economies remains one of the Company’s key attractions for investors seeking portfolio diversification.
Our managers also note that the rise in geo-political tensions globally is leading major developed economies to diversify their food, energy and technology supply chains, to the benefit of many of the countries in which they invest. This, combined with an investment universe of countries with favourable demographics, a growing and more affluent middle-class, relatively low debt and low stock market valuations, both versus developed markets and their own history, presents an ever more compelling investment case for exposure to frontier markets. In addition, alongside capital growth, the Company’s dividend yield remains an attractive element of the Company’s investment proposition. I am pleased that we have again been able to grow our earnings and increase the dividend distributed to shareholders this year.
As I look back over my tenure as Chairman of the Board since launch in late 2010, I am reminded of the various political and economic crises through which we have had to navigate, both domestically and globally. I am proud of what the Company has achieved, and I thank my fellow directors, past and present, for the benefit of their collective wisdom, experience, and expertise and their contribution to the success of the Company. I would also like to take this opportunity to thank our portfolio managers for their dedication to and passion for frontier market investing, and their unwavering commitment to travelling the globe in search of the best and brightest companies that frontier markets have to offer.
As I sign off on my tenure, I am confident that the leadership of the Company is in safe hands with my successor, Katrina. I am also reassured that our portfolio managers continue to express the same infectious enthusiasm and excitement about the opportunities available in frontier markets as they did when we launched the Company in 2010. I believe the Company’s offering is truly unique and continues to provide our shareholders with access to dynamic markets and fast growing, exciting companies. I wish the team well for the future and thank shareholders for their loyalty and support.
AUDLEY TWISTON-DAVIES
Chairman
29 November 2023
1 All numbers in US Dollar terms with dividends reinvested.
You can discover more about the BlackRock Frontiers Investment Trust at blackrock.com/uk/brfi
Investment Manager’s Report For the year ended 30 September 2023
Market review
The 2020s look set to be a decade dominated by geopolitics and 2023 was no exception. Tensions between China and the West remain at elevated levels, the conflict between Russia and Ukraine continues and post year end we have seen devastating loss of life in the Middle East. Remarkably, despite this backdrop, 2023 was a very strong year for Trust performance.
For the year ended 30 September 2023, the Company’s NAV returned 25.1%, compared with a Benchmark Index return of 5.0% in US Dollar terms. In British Pound Sterling terms, the Company’s NAV was up by 14.4%, relative to a Benchmark Index return of -3.9%. For reference, the MSCI Emerging Markets Index was up by 11.7% and the MSCI World Index by 22.0% over the same period (in US Dollar terms). Under the hood, the drivers of various parts of the frontier markets universe are unsurprisingly quite divergent.
Many of the countries where we invest have sought to walk the tightrope of occupying neutral ground between the global super powers of East and West. US policy looking to reshore manufacture of sensitive technology items is pressuring companies to consider expanding their production bases. Coming on the back of the supply chain challenges that we saw during COVID and the concerns that brought around food and energy security, we have seen companies continue to invest in geographic diversification. ASEAN, Emerging Europe and Latin America are the likely beneficiaries and should benefit disproportionately given the smaller size of the economies relative to the global supply chains. Investment has come from both East and West. As an example, Vietnam has not only seen Global players such as Apple and Dell announce expanded manufacturing operations, but has also seen an uptick in foreign direct investment from Chinese exporters looking fearful of losing their market share.
Inflation has dominated global investor conversations through 2023. Notably in our markets, inflation peaked in almost all countries around the end of Q1 2023. Central banks in frontier and small emerging markets have generally exercised orthodox monetary policy, having started increasing rates co-incident with inflation, equating to around 12 months ahead of the West. This has meant that they have had some scope through H2 2023 to start to reduce rates. Latin America and Eastern Europe contain good examples of this: Chile has cut rates 100bps since July from 11.25% and Hungary has reduced its rate from 18% to 13%. Normalisation of rates would typically be a good set up for our markets, allowing domestic growth to recover and accelerate.
2023 was a notable year from a political context for many markets with elections taking place in Greece, Thailand, and Turkey. Over the next twelve months there will be elections in Indonesia and Ecuador to name a few. The market reactions to these recent elections have been the strongest deservedly mixed. In Greece, political party New Democracy, led by PM Mitsotakis picked up 41% of the vote to Syriza’s 20%, exceeding poll predictions and, giving a strong mandate for a second term. We expect their agenda of bureaucratic reform, privatisation and investment to provide a strong underpin for the economy. In Thailand, the Move Forward party won more seats than Pheu Thai, the expected leaders. However, Pita Limjaroenrat, leader of Move Forward was not able to form a sufficiently large coalition government to win a majority in the combined upper and lower house. We were initially hopeful for change in policy direction, but expect the current government to lean towards policy continuity. Finally in Turkey, the opposition lost once more! We observe the turn towards economic orthodoxy by President Erdogan since his recent election win out of necessity but remain cautious on the exchange rate given the recent inflation print of 61.5% for September 2023.
Markets in Central Europe have been notable performers over the 1-year period. Hungary (+76%) and Poland (+59%) have performed well, with banks leading the way in both markets. Higher interest rates have resulted in significant increases in net interest margins, particularly in countries where rates are tied to European rates, the change in profitability has been dramatic.
In Latin America all markets have generated positive returns. Within the region, Argentina (+62%) was the best performing market ahead of elections. These elections concluded 19 November 2023, with libertarian Javier Milei picking up a majority of the votes ahead of Sergio Massa, the centrist rival. We believe Milei’s victory will bring with it a significant change in policy direction, and initial market reactions to his win have been positive. We do however believe that the economic situation in Argentina will remain challenging and difficult due to a plethora of issues, including high inflation.
In Southeast Asia, performance was more fragmented with Philippines (+18%) being the top performer. Philippines performance was helped by market-friendly policies set forth by current president Ferdinand Marcos Jr, who won the election in June last year. Vietnam on the other hand lagged. Tight liquidity conditions, a government corruption crackdown and a slowdown in the property sector impacted the market which fell -9% over the 1-year horizon.
Due diligence on the ground
We have continued to travel extensively across the emerging and frontier world in the pursuit of alpha. Travel is an integral part of our responsibilities as Fund Managers as the information we obtain on these trips serves as important input in our decision-making progress. Speaking to companies on the ground, understanding the ecosystem surrounding the company and talking to suppliers and clients all matter in our effort to form a holistic view of the companies in which we invest. To that end, travel continued as normal throughout the period, and we have visited many countries. We will highlight just a couple here.
Recent travel to Malaysia left us more optimistic about how the country can benefit from regional semiconductor and tech packaging supply chains diversifying away from China and Taiwan amid growing geopolitical risks. We also visited Egypt and came back more cautious. Although policy makers have allowed the Egyptian Pound to materially devalue we felt there was little appetite to allow a free float, with clear preference to sell domestic assets to raise dollars. Whilst the plan has merits, with high inflation and an unwillingness to raise rates further, we don’t think they’ll be able to sell assets fast enough to fund that gap.
Another country the team visited over the period was Bangladesh, a fruitful trip that left us positive on the opportunity set within the country. For example, Bangladesh is famous for its garmenting and is now the world’s second largest garment manufacturer. We believe the country can use its manufacturing expertise to gain market share in other manufacturing sectors. Our experience tells us that there are real benefits to investing in an emerging market when the country is in real need of foreign capital and before other foreign investors get there – Bangladesh meets those criteria. However, there are challenges which still need resolving – among them the currency needs to weaken and the floor on stock market prices needs to be dismantled.
Portfolio performance
Over the 12-month period, the Company generated positive returns in a number of countries. Elm (+146%), the Saudi IT company, was the biggest contributor to relative returns over the period. The company has done well on the back of profit growth and re-rating from the digitisation theme we are seeing in the Kingdom. The Qatar-based oil services holding company Gulf International Services (+48.4%) also did well. The company’s Q2 earnings surprised on the upside and the share pricewas also helped by the company successfully concluding a debt restructuring deal at favourable terms with lenders.
In Argentina our off-benchmark position in energy company Vista (+146%) was amongst the top contributors at the company level. We expect growth in shale production in Argentina to continue its dramatic growth profile and Vista will remain at the centre of this. The company still believes they can nearly double production volumes from this point.
Financials exposure has benefitted the Company, primarily through our exposure to banks across CEEMEA markets. Polish bank PKO (+80%), National Bank of Greece (+90%) and Hungary’s OTP Bank (+103%) are all amongst the top contributing companies over the period. In addition to a beneficial rates environment in these markets, asset quality of the bank portfolios has been very benign, which has translated into stronger than expected earnings. Financials exposure in Kazakhstan also contributed positively, our overweight in Kaspi (+80%), the payments and e-commerce company, was a significant contributor to overall returns. This has been a long-term holding in the Fund with a proposed US listing in Q4 this year, which should hopefully lead to further value unlocking.
In Asia, Vietnamese tech conglomerate FPT Corp (+29%) did well. This business contains a fast-growing IT services business that retains a cost advantage and has been able to win new mandates in developed markets. Given its relatively small size compared to Indian and global peers, the company has a long runway for growth. Indonesian clothing retailer, Mitra Adiperkasa (+70%) did well on the back of strong results as strong like-for-like sales continued from market share gains in the apparel market in Indonesia.
While Financials exposure has benefitted the Fund more broadly, some names have lagged with Saudi National Bank (-28%) being the biggest detractor over the period. The bank made a non-core investment in Credit Suisse which had to be written off. The market has penalised the bank for poor capital allocation and the domestic corporate credit growth picture remains murky at best. However, this remains our preferred bank exposure in Saudi Arabia, as it prices in rates normalisation and the valuation is compelling at current levels. Elsewhere in the Kingdom, Saudi Telecom also fell (-9%). While earnings per share have been good, there has been no uplift in dividend which disappointed the market. We exited the position in February. Another detractor over the period was our off-benchmark holding in Nagacorp (-37%), the Cambodian integrated-gambling resort operator. The recovery of Chinese travellers to pre-covid levels has been slower than expected, but despite that, the company is still generating strong free cash flows.
Investment activity
We have reduced our overall exposure to the Middle East, primarily through reducing our financial holdings in Saudi Arabia. In the banking sector in particular, we believe margins have peaked out, liquidity is tight and valuations are high overall. On this view, we rotated some financials exposure from the Kingdom to UAE by exiting our holding in Riyad Bank and rotating this into Abu Dhabi Commercial Bank. We also exited Saudi British Bank on a similar view. We are however finding value in other sectors within the country and have increased exposure to petrochemical names. We initiated a position in Saudi Basic Industries on the view that margins are at 10-year troughs and as the company is still free cash flow positive, it should do wellon an eventual economic upswing.
We have continued to increase our exposure to countries we see benefitting from the recalibration of supply chains, many of which are in Southeast Asia. In the Philippines we have initiated positions in sectors spanning from real estate to financials. We initiated a position in property developer Ayala Land as the stock has meaningfully corrected and we see a potential turnaround in the local real estate cycle. We also recently re-initiated a position in Bloomberry Resorts, a Philippines based resort and casino operator, on the view that strong volume growth will continue and that leverage is likely to fall from current levels. Elsewhere in the region, we increased our exposure to the telecom space in Thailand on the back of consolidation in the sector. We also continue to be positive on Indonesia.
We have taken profits in various European banks like National Bank of Greece, OTP Bank in Hungary and in Polish bank PKO. We exited Titan Cement, the Greek cement and building materials producer as our investment view played out. In LatinAmerica, we exited pan-American airline Copa as the stock reached our target price following a strong earnings release.
Outlook
We believe global markets are starting to feel the impact of higher interest rates, noting slowing credit growth as evidence that a demand slowdown is imminent in developed markets. When combined with a Chinese economy which is struggling to find its footing we find it difficult to see where a meaningful pick up in global growth could come from.
In contrast we see better fundamentals in frontier and smaller emerging markets. Monetary tightening across much of our universe was ahead of that in developed markets as well as, in many cases, stronger than in past cycles, particularly in Latin America and Eastern Europe. With inflation falling across many countries within our universe, rate cuts have already taken place or are underway in some of our markets. This is typically a good set up as domestic economies should see a cyclical pick up. This is in stark contrast to many countries in the developed world, where major economies like the US are still in a tightening cycle.
We continue to like Indonesia and the country is currently the largest absolute weight in the portfolio. We are positive on the country’s ability to grow, due in part to beneficial policymaking. For example, by banning the export of raw ore, Indonesia has increased the value of its mineral exports, enhanced its domestic processing and refining capabilities, and created more economic opportunities for its people. We therefore remain positive on their ability to grow the value added from their nickel exports. We are also positive on other ASEAN markets as we believe many of these countries stand to benefit from increased geopolitical tensions worldwide. These countries will likely maintain trade relations with both the West and the East, and can therefore benefit from the shifting in global supply chains away from China.
Elsewhere we note the growth in oil and gas production in Argentina which is on an impressive trajectory and where we have exposure. This shift is especially important for a country short on foreign currency; Argentina needs to get this export project ramped up to meaningfully change its economic circumstance.
A growing collection of the smaller markets including Pakistan, Sri Lanka, Kenya and Nigeria have started to pique our interest again. Despite previously having positions in some of these markets, they have been relatively un-investible for the last few years as imbalances built up and policy makers responded with significant capital controls. Year to date we have now seen more orthodox steps to let the FX find a market equilibrium, through reducing intervention and import controls. Many countries have hiked rates and secured an International Monetary Fund (IMF) package. All these measures will help rebalance economies and will allow markets to function properly. If they follow through on this there could be some interesting investment opportunities in this cohort of countries.
We remain positive on the outlook for small emerging and frontier markets versus developed markets, and we find significant value in currencies and equity markets across our investment opportunity set. We are optimistic over the long-term in our under-researched frontiers universe which should continue to offer compelling investment opportunities.
SAM VECHT, EMILY FLETCHER AND SUDAIF NIAZ
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
29 November 2023
Ten largest investmentsas at 30 September 20231
The Company’s ten largest investments represented 32.2% of the Company’s portfolio as at 30 September 2023 (2022: 35.2%).
1 + Bank Central Asia (2022: n/a)
Financials (Indonesia)
Portfolio value: US$16,590,000
Percentage of net assets: 4.6% (2022: nil%)
Bank Central Asia is an Indonesian commercial bank headquartered in Jakarta. It is the largest private bank in the country, offering commercial banking and other financial services.
2 = Saudi National Bank2(2022: 2nd)
Financials (Saudi Arabia)
Portfolio value: US$15,365,000
Percentage of net assets: 4.2% (2022: 4.6%)
Saudi National Bank is a commercial bank based in Saudi Arabia. The bank offers current, savings, time, and other deposit accounts, auto leases, home financing, corporate loans, currency exchange, money transfer, asset management, share brokerage, initial public offering subscription and private banking services.
3 + JSC Kaspi (2022: 4th)
Financials (Kazakhstan)
Portfolio value: US$11,468,000
Percentage of net assets: 3.2% (2022: 3.4%)
JSC Kaspi is the largest payments, marketplace and fintech ecosystem in Kazakhstan. The company has seen strong growth particularly in its marketplace and payments verticals. The company began as a bank at first but expanded into peer-to-peer payments and online marketplaces, particularly proving vital for businesses during the lockdowns of 2020. The company is working on expanding into other markets in Central Asia.
4 + Bank Mandiri (2022: 23rd)
Financials (Indonesia)
Portfolio value: US$11,348,000
Percentage of net assets: 3.1% (2022: 2.0%)
Bank Mandiri is one of the largest banks in Indonesia. The bank offers a range of banking products and services segments from corporate to retail banking.
5 + Astra International (2022: 12th)
Industrials (Indonesia)
Portfolio value: US$10,861,000
Percentage of net assets: 3.0% (2022: 2.6%)
Astra International is an Indonesian auto conglomerate and the largest independent automotive group in South East Asia.
6 – Emaar Properties (2022: 1st)
Real Estate (United Arab Emirates)
Portfolio value: US$10,687,000
Percentage of net assets: 2.9% (2022: 4.7%)
Emaar Properties is an Emirati real estate developer. The company is involved in property investment, development, shopping malls, retail centres, hospitality and property management services, and serves customers in the UAE.
7 + FPT2(2022: 11th)
Information Technology (Vietnam)
Portfolio value: US$10,336,000
Percentage of net assets: 2.8% (2022: 2.6%)
FPT is Vietnam’s largest information technology services company, with a focus on information and communications technologies. The core business focuses on consulting, providing and deploying technology and telecommunications services and solutions.
8 + CP All (2022: n/a)
Consumer Staples (Thailand)
Portfolio value: US$10,302,000
Percentage of net assets: 2.8% (2022: nil%)
CP All is a convenience store operator based in Thailand. It also operates wholesale business, retail business and mall, payment centres and related supporting services. The convenience stores are operated under the 7-Eleven trademark.
9 + Saudi Basic Industries Corporation2(2022: n/a)
Materials (Saudi Arabia)
Portfolio value: US$10,108,000
Percentage of net assets: 2.8% (2022: nil%)
Saudi Basic Industries Corporation (SABIC), headquartered in Riyadh, is a steel and chemicals manufacturer. The company is a subsidiary of Saudi Arabian Oil Co, and engages in the production of petrochemicals, chemicals, industrial polymers, fertilisers and metals.
10 + Advanced Info Service (2022: n/a)
Communication Services (Thailand)
Portfolio value: US$10,062,000
Percentage of portfolio: 2.8% (2022: nil%)
Advanced Info Service is a Thailand based telecom services provider. The company operates through three segments: mobile phone services, mobile phone and equipment sales, and Datanet and broadband services.
1 Gross market exposure as a % of net assets.
2 Exposure gained via long contracts for difference (CFDs) only.
Percentages in brackets represent the portfolio holding as at 30 September 2022.
Symbols indicate the change in the relative ranking of the position in the portfolio compared to its ranking as at 30 September 2022.
You can discover more about the BlackRock Frontiers Investment Trust at blackrock.com/uk/brfi
