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 | -4.8 | 6.5 | 8.7 | 10.4 | 6.1 | 95.6 |
| Net asset value | -4.1 | 7.0 | 7.7 | 20.5 | 20.4 | 122.6 |
| Benchmark (NR)** | -3.5 | 5.9 | 12.0 | 9.9 | 22.4 | 87.5 |
| MSCI Frontiers Index (NR) | -5.4 | 1.8 | -9.6 | 6.2 | 12.9 | 74.2 |
| MSCI Emerging Markets Index (NR) | -8.0 | -3.8 | -13.2 | 3.7 | 9.7 | 46.7 |
| US Dollars: | ||||||
| Share price | -8.7 | -2.1 | -10.0 | 0.0 | -11.7 | 40.6 |
| Net asset value | -8.0 | -1.7 | -10.9 | 9.1 | 0.3 | 59.8 |
| Benchmark (NR)** | -7.4 | -2.6 | -7.3 | -0.5 | 1.8 | 35.3 |
| MSCI Frontiers Index (NR) | -9.3 | -6.5 | -25.2 | -3.8 | -6.0 | 24.7 |
| MSCI Emerging Markets Index (NR) | -11.7 | -11.6 | -28.1 | -6.1 | -8.7 | 5.1 |
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 assets | Country Analysis | Gross market value as a % of net assets | |
| Financials | 40.9 | Saudi Arabia | 23.2 | |
| Materials | 12.0 | Indonesia | 13.2 | |
| Consumer Discretionary | 10.3 | Malaysia | 8.5 | |
| Industrials | 9.4 | Kazakhstan | 7.3 | |
| Consumer Staples | 8.5 | Vietnam | 7.0 | |
| Energy | 7.9 | United Arab Emirates | 6.7 | |
| Information Technology | 4.9 | Chile | 5.7 | |
| Real Estate | 4.7 | Thailand | 5.4 | |
| Communication Services | 4.6 | Qatar | 4.6 | |
| Health Care | 1.7 | Greece | 4.3 | |
| Utilities | 1.3 | Hungary | 3.7 | |
| —– | Poland | 3.1 | ||
| 106.2 | Romania | 2.2 | ||
| —– | Philippines | 1.9 | ||
| Short positions | -5.2 | Panama | 1.9 | |
| ===== | Egypt | 1.8 | ||
| Peru | 1.5 | |||
| Kuwait | 1.5 | |||
| Colombia | 1.4 | |||
| Kenya | 0.9 | |||
| Ukraine | 0.4 | |||
| —– | ||||
| Total | 106.2 | |||
| —– | ||||
| 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 % | |
| Long | 110.6 | 106.3 | 104.3 | 108.4 | 110.7 | 111.1 | 110.6 | 107.9 | 106.1 | 107.3 | 107.3 | 106.2 |
| 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 |
| Gross | 111.0 | 106.7 | 105.3 | 110.3 | 114.0 | 113.4 | 112.4 | 112.6 | 110.7 | 113.5 | 112.6 | 111.4 |
| Net | 110.2 | 105.9 | 103.3 | 106.5 | 107.4 | 108.8 | 108.8 | 103.2 | 101.5 | 101.1 | 102.0 | 101.0 |
Ten Largest Investments
| Company | Country of Risk | Gross market value as a % of net assets |
| Emaar Properties | United Arab Emirates | 4.7 |
| Saudi National Bank | Saudi Arabia | 4.6 |
| Bank Rakyat | Indonesia | 4.6 |
| JSC Kaspi | Kazakhstan | 3.4 |
| Abdullah Al Othaim Markets | Saudi Arabia | 3.2 |
| Qatar Gas Transport | Qatar | 3.1 |
| PKO Bank Polski | Poland | 3.1 |
| Saudi Telecom | Saudi Arabia | 3.0 |
| Genting Malaysia | Malaysia | 3.0 |
| Saudi British Bank | Saudi Arabia | 2.6 |
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
