BlackRock Frontiers Investment Trust plc (LON:BRFI) has announced its Annual Report and Financial Statements 30 September 2024.
You can discover more about the BlackRock Frontiers Investment Trust at blackrock.com/uk/brfi
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 2024 | As at 30 September 2023 | ||
| US Dollar | |||
| Net assets (US$’000)1 | 406,243 | 363,598 | |
| Net asset value per ordinary share (cents) | 214.57 | 192.05 | |
| Ordinary share price (mid-market)2 (cents) | 194.50 | 175.76 | |
| ————— | ————— | ||
| British Pound Sterling | |||
| Net assets (£’000)1,2 | 302,850 | 297,897 | |
| Net asset value per ordinary share2 (pence) | 159.96 | 157.35 | |
| Ordinary share price (mid-market) (pence) | 145.00 | 144.00 | |
| Discount3 | 9.4% | 8.5% | |
| ========= | ========= |
Performance | For the year ended 30 September 2024 % | For the year ended 30 September 2023 % | Since inception4 % |
| US Dollar | |||
| Net asset value per share (with dividends reinvested)3 | +16.5 | +25.1 | +132.9 |
| Benchmark Index5,6 | +15.7 | +5.0 | +64.4 |
| MSCI Frontier Markets Index6 | +15.1 | +6.5 | +52.8 |
| MSCI Emerging Markets Index6 | +26.1 | +11.7 | +47.9 |
| Ordinary share price (with dividends reinvested)3 | +15.8 | +28.8 | +109.7 |
| ————— | ————— | ————— | |
| British Pound Sterling | |||
| Net asset value per share (with dividends reinvested)3 | +6.0 | +14.3 | +169.8 |
| Benchmark Index5,6 | +5.3 | -3.9 | +89.7 |
| MSCI Frontier Markets Index6 | +4.7 | -2.6 | +77.6 |
| MSCI Emerging Markets Index6 | +14.7 | +2.2 | +71.9 |
| Ordinary share price (with dividends reinvested)3 | +5.4 | +17.7 | +142.6 |
| ========= | ========= | ========= |
1 The change in net assets reflects dividends paid and portfolio movements during the year.
2 Based on an exchange rate of US$1.3414 to £1 at 30 September 2024 and US$1.2206 to £1 at 30 September 2023.
3 Alternative Performance Measures, see Glossary in the Company’s Annual Report for the year ended 30 September 2024.
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. 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 Total return indices calculate the reinvestment of dividends net of withholding taxes.
Sources: BlackRock and LSEG Datastream.
Chair’s statement
Overview
Over the year to 30 September 2024, your Company’s Net Asset Value per share produced a total return in US Dollars of +16.5%, compared to an increase in the Benchmark Index of +15.7%, resulting in outperformance of +0.8%1. This means that your Company’s NAV has risen by +132.9% since launch, more than double the benchmark return of +64.4%. For British Pound Sterling based shareholders, the equivalent return for the year was +6.0%, with the Benchmark Index returning +5.3%, representing outperformance of +0.7%1.
Since the financial year end and up to close of business on 2 December 2024, the Company’s NAV has decreased by -2.2% compared with a decrease in the Benchmark Index of -5.7%, representing an outperformance of +3.5%. For British Pound Sterling based shareholders, the equivalent return for the financial year to date is +3.9%, with the Benchmark Index returning +0.2%, representing outperformance of 3.7%1.
Our portfolio managers provide a detailed description of the key contributors to and detractors from 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 below.
I am delighted to tell you that the Company won the Investment Week Investment Company of the Year Award 2024 – Global Emerging Markets category for the third year in a row. The Company also won the CityWire Investment Trust Award 2024 – Global Emerging Markets Equities Trust. I am sure shareholders will join me in congratulating the investment team on these notable achievements.
Revenue return and dividends
The Company’s revenue return per share for the year amounted to 9.97 cents (2023: 8.38 cents). The Directors are recommending the payment of a final dividend of 6.00 cents per ordinary share (2023: 4.90 cents) in respect of the year ended 30 September 2024. Together with the interim dividend of 3.50 cents per share (2023: 3.10 cents), this represents a total of 9.50 cents per share (2023: 8.00 cents) and an increase of 18.8% over the previous year.
Subject to shareholder approval, this dividend will be paid on 14 February 2025 to shareholders on the register at close of business on 10 January 2025. The ex-dividend date will be 9 January 2025. The Company does not have a policy of actively targeting income; nevertheless, this return represents an attractive yield of 4.9% (please see the Glossary in the Company’s Annual Report for the year ended 30 September 2024 for the inputs to the yield calculation).
Fees and charges
Following its outperformance of the Benchmark Index during the financial year, the Manager generated a performance fee of US$3.5m for the year ended 30 September 2024. 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 cumulative underperformance against the Benchmark Index since launch before a performance fee can be generated.
The Board recently conducted a comprehensive review of the Company’s investment management and performance fee arrangements, which included seeking a formal opinion on all aspects of the fee structure from an independent third party. As a result of this review, certain changes are being made to the fee arrangements. With effect from 1 October 2024, the management fee will be levied on the Company’s net asset value (previously the fee was levied on the Company’s gross assets, defined as the aggregate net assets of the long equity and CFD portfolios of the Company). In practice this will have minimal impact on the quantum of the fee due to the fact that the accounting basis for calculating the net asset value of the CFD portfolios means that gross assets often equate to net assets to the extent the Company is not leveraged through other means. However, it aligns the fee structure with broader market practice and has the benefit of being simpler to understand. In addition, a tiered fee structure will be introduced with effect from the same date, such that a fee of 1.1% per annum will be levied on the Company’s net assets up to US$650 million, reducing to 1% per annum on net assets above this amount. The Board notes that the US$650 million threshold for tiering is aligned to a British Pound Sterling equivalent threshold of £500 million, which is comparable to or lower than the five other trusts in the AIC Global Emerging Markets sector (the sector in which the Company sits) that have adopted a tiered fee structure. Following this review, the Board believes the fee structure is appropriate.
Further details of the Company’s costs and charges can be found in note 4 below and in the Glossary in the Company’s Annual Report for the year ended 30 September 2024.
Share capital management
For the year under review, the Company’s ordinary shares traded at an average discount to NAV of 8.5% and were trading at a discount of 9.1% on a cum-income basis at 2 December 2024, the latest practicable date prior to the issue of this report.
The Directors recognise the importance to investors of ensuring that the Company’s shares do not trade at a significant discount or premium to NAV. Accordingly, the Directors 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 Company also provides a five-yearly opportunity for shareholders to realise the value of their ordinary shares at the prevailing NAV less costs. The next such opportunity will occur in early 2026.
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 Wednesday, 5 February 2025, 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 2024.
As at 30 September 2024, the Company had 189,325,748 ordinary shares in issue, excluding 52,497,053 shares held in treasury. No shares were bought back during the year. However, since the year end and up to 2 December 2024, the Company bought 25,000 ordinary shares back at an average price of 149.00p per share for a total cost of £37,000. All shares have been placed in treasury. No shares were issued during the year under review or post year end from 1 October 2024 up to the date of this report.
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 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 interest rates. Against this backdrop, the average discount for the investment company sector as a whole has recently exceeded 15%. The Company’s discount compares favourably to this level, as it does to the average discount of the AIC Global Emerging Markets sector which stood at 11.15% on 2 December 2024, the latest practicable date prior to the publication of this report.
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 attractions of our investment proposition to both existing and new shareholders. To this end, the Board has recently initiated a project to scrutinise investors’ perception of the Company with the help of an external agency and this will enable us to refine our marketing strategy over the coming months.
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 4.0%. This compares with 12.0% at the start of the financial year, with the decrease reflecting timing differences on the back of profit taking prior to reinvesting the proceeds.
Board composition
As announced on 18 January 2024, Mr Hatem Dowidar was appointed a non-executive Director of the Company with effect from 7 February 2024. Hatem brings a wealth of relevant experience in frontier markets, both strengthening and complementing the skills of the existing Board. Hatem is based in the Middle East and through his role as CEO of a major telecommunications company operating in the region, he possesses in-depth knowledge of these markets. We welcome him and believe his expertise and on-the-ground market insight will be of great value to the Board.
As at 30 September 2024, the Board consisted of five independent non-executive Directors. As part of its succession planning, 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 discharge its duties most effectively. The Directors submit themselves for re-election annually and therefore all Directors will stand for either election or re-election at the forthcoming AGM.
Further information on the Directors’ backgrounds and experience can be found in the Company’s Annual Report for the year ended 30 September 2024.
Corporate governance
The Board takes its governance responsibilities very seriously and follows best practice wherever possible. The UK Code of Corporate Governance (the UK Code) requires enhanced disclosure setting out how we, as Directors, have fulfilled our duties, 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 during the year. The overall conclusion was very positive in terms of the effectiveness of the Board and the skills, expertise and commitment of the individual Directors. The combination of a clear succession plan, structured search and selection process when making new appointments and thorough annual performance evaluation means that the Board remains confident that each Director is discharging their role effectively.
The Board is 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 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 60:40 female to male gender ratio. 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 2024.
Environmental, Social and Governance (ESG) considerations
The frontier markets in which the Company can invest are home to over three billion of the world’s population and through our investments we bring much needed capital to markets largely overlooked by developed world investors.
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, ethical and sustainability issues are considered as part of the investment process. Your Board is committed to diligent oversight and, as such, during the year under review, we introduced measures to improve our understanding of ESG factors within the portfolio as well as the nature and frequency of engagement with investee companies.
Further information can be found in the Company’s Annual Report for the year ended 30 September 2024.
Annual general meeting
This year’s AGM will be held in person at 12:30 p.m. on Wednesday, 5 February 2025 at the offices of BlackRock at 12 Throgmorton Avenue, London, EC2N 2DL. Details of the business of the meeting are set out in the Notice of Annual General Meeting in the Company’s Annual Report for the year ended 30 September 2024.
Prior to the formal business of the meeting, our Investment Managers will make a presentation to shareholders. This will be followed by a question and answer session. Shareholders who are unable to attend the meeting in person but who wish to follow the AGM proceedings can do so via a live webinar this year. Details on how to register, together with access details, will be available shortly on the Company’s website at: www.blackrock.com/uk/brfi. It is not possible to attend, speak or vote via this medium and it is solely intended to provide shareholders with the ability to watch the proceedings.
Additionally, if you are unable to attend you can exercise your right to vote by proxy or appoint a proxy to attend in your place. Details of how to do this are included on the AGM Proxy Card provided to shareholders with the annual report. If you hold your shares through a platform or nominees, you will need to contact them and ask them to appoint you as a proxy in respect of your shares in order to attend, speak and vote at the AGM. Further information on the business of this year’s AGM can be found in the Notice of the Annual General Meeting in the Company’s Annual Report for the year ended 30 September 2024.
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
I was delighted to offer my first meetings as Chair to several of our shareholders during the year. As always, it is invaluable to share views on the Company as well as the wider sector and I look forward to staying in regular dialogue going forward.
We appreciate how important access to up to date 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 the Company’s Annual Report for the year ended 30 September 2024.
In order to facilitate greater attendance and participation at the Company’s AGM, I have sought to engage with shareholders who hold their shares through an intermediary or platform via the provisions of Section 793 of the Companies Act 2006. The Board encourages all shareholders to either attend the AGM or exercise your right to vote by proxy. The Board is also aware that certain execution only investment platforms are now providing shareholders with the ability to vote electronically. The Board encourages shareholders to take advantage of this functionality where it is available to you.
The Board takes its responsibilities very seriously and is committed to exercising the highest standard of corporate governance. It regularly considers the views of its major shareholders, offering to meet with them annually, and seeks to engage with all shareholders where possible. Should shareholders wish to contact me, you can do so by emailing me at [email protected] or by writing to the Company Secretary at the address given in the Company’s Annual Report for the year ended 30 September 2024.
Outlook
The Company continues to provide shareholders access to fast growing and high quality companies operating in a diverse range of fascinating countries. These more specialist markets are often under researched and can therefore trade at very low valuations, providing a rich opportunity set for experienced investors. Our managers note that most of the key markets in our investment universe performed well this year, across Asia, the Middle East and Europe. They also describe positive political and economic reform in several countries, presenting them with a more stable and benign environment for investment. Frontier market central banks are in many cases further along the easing cycle than the developed economies and already well into the growth phase of the cycle. 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 frontier markets. In addition, alongside capital growth, the Company’s dividend yield remains a valuable element of our investment proposition.
As we enter the start of our next financial year, our portfolio managers are enthused by the breadth of the opportunity set, noting the improving fundamentals of several countries in which they have not invested for several years such as Egypt, Kenya, Nigeria, Pakistan and Sri Lanka. Against this improving macroeconomic backdrop, our portfolio managers continue to execute their long-established investment philosophy and process with great expertise and dedication. We believe they are uniquely placed to navigate the Company through these interesting and dynamic markets, unearthing hidden gems and providing investors with unrivaled access to the best frontier markets can offer.
KATRINA HART
Chair
4 December 2024
1 All numbers are stated with dividends reinvested.
You can discover more about the BlackRock Frontiers Investment Trust at blackrock.com/uk/brfi
