Disclaimer
This is a non-independent marketing communication commissioned by BlackRock. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
Between them, Asian giants China, India, South Korea and Taiwan make up around three-quarters of the index1, leaving regions such as Latin America, Eastern Europe, Africa and the Middle East relatively unrepresented. While this approach is not without its merits, exploring the world’s smaller markets for unique and untapped growth opportunities may be rewarding.
Although larger emerging markets present considerable growth prospects, the range of opportunities found in the smaller emerging markets may be less correlated to the global cycle. In the MSCI Emerging Markets index, for example, the largest weightings are Taiwan Semiconductor, Samsung Electronics and Tencent1. These are large global businesses, dependent on global demand patterns. They may be great companies, with strong growth prospects, but their fortunes are determined as much by the outlook for the US economy as Taiwan or South Korea.
Idiosyncratic risks
The fortunes of companies in smaller emerging markets tend to have a more direct relationship with domestic economic growth. For instance, a bank in Indonesia or Georgia would primarily be an investment in the potential for economic expansion and increasing financial inclusivity within its own country, rather than being influenced by global factors. This is part of the appeal of investing in frontier markets.
These frontier market countries are, we believe, often only lightly correlated to each other2 - Saudi Arabia may not be impacted by what's happening in Indonesia or Chile - which also helps risk management in a portfolio. The risks for each company and country may be idiosyncratic. This means an allocation to these smaller markets may add true diversification to a portfolio.
Because investor attention is elsewhere, there are a lot of under-researched opportunities in the rest of the world3. We believe these smaller countries provide a differentiated range of investment options and will often trade at lower valuations4.
Also, these companies need to work harder to attract attention, so will often return capital to shareholders via dividends4. This may give investors a diversified source of income in their portfolios. While we don’t have an income target, the current yield of the portfolio is a result of the companies we invest in, which generate considerable amounts of cash.
How BlackRock manages risk in Frontier market investing
Investing in frontier markets may give investors exposure to attractive growth stories, but these are markets that need to be approached with care. Small capital flows can make a significant difference, and they are often illiquid. There may be political and economic volatility. We manage these risks through careful due diligence and holding a spread of assets. We travel frequently to the countries within our universe, to make sure we understand both the company and the environment in which it operates.
These smaller companies often sit outside the mainstream – apart from the broad sweep of global politics and economies. They may be able to side-step geopolitical tensions, trading with both China and the US, and can forge their own paths. Against this backdrop, they have the potential to be a source of diversification and growth for investors.
1 MSCI - MSCI Emerging market index - April 2024
2 BlackRock Frontiers Investment Trust Report - Reasons to invest, p2 - March /2024
3 BlackRock Frontiers Investment Trust Report - Investment manager’s report p10, 31/03/2024
4 MSCI Frontier Markets - April 2024
Risk Warnings
Investors should refer to the prospectus or offering documentation for the funds full list of risks.
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.
Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time and depend on personal individual circumstances.
Trust Specific Risks
Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss.
Currency Risk: The Fund invests in other currencies. Changes in exchange rates will therefore affect the value of the investment.
Emerging Markets: Emerging markets are generally more sensitive to economic and political conditions than developed markets. Other factors include greater 'Liquidity Risk', restrictions on investment or transfer of assets and failed/delayed delivery of securities or payments to the Fund.
Frontier Markets: Frontier markets are generally more sensitive to economic and political conditions than developed and emerging markets. Other factors include greater 'Liquidity Risk', restrictions on investment or transfer of assets and failed/delayed delivery of securities or payments to the Fund. There may be larger fluctuations to the value of your investment and increased risk of losing your capital.
Gearing Risk: Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.
Important Information
This document is marketing material.
Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394. For your protection telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.
BlackRock has not considered the suitability of this investment against your individual needs and risk tolerance. To ensure you understand whether our product is suitable, please read the fund specific risks in the Key Investor Document (KID) which gives more information about the risk profile of the investment. The KID and other documentation are available on the relevant product pages at https://www.blackrock.co.uk/its. We recommend you seek independent professional advice prior to investing.
The Company is managed by BlackRock Fund Managers Limited (BFM) as the AIFM. BFM has delegated certain investment management and other ancillary services to BlackRock Investment Management (UK) Limited. The Company’s shares are traded on the London Stock Exchange and dealing may only be through a member of the Exchange.
The Company will not invest more than 15% of its gross assets in other listed investment trusts. SEDOL™ is a trademark of the London Stock Exchange plc and is used under licence.
Net Asset Value (NAV) performance is not the same as share price performance, and shareholders may realise returns that are lower or higher than NAV performance.
The BlackRock Frontiers Investment Trust plc currently conducts its affairs so that its securities can be recommended by IFAs to ordinary retail investors in accordance with the Financial Conduct Authority’s rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future. The securities are excluded from the Financial Conduct Authority’s restrictions which apply to non-mainstream investment products because they are shares in an investment trust.
Investors should understand all characteristics of the funds objective before investing. For information on investor rights and how to raise complaints please go to https://www.blackrock.com/corporate/compliance/investor-right available in local language in registered jurisdictions.
Any research in this material has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.
This material is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.
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