Fund Profile

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.

Overview
Opportunities in smaller emerging and frontier countries bring BRFI to the fore after China woes…
Overview

BlackRock Frontiers Investment Trust (BRFI) provides exposure to the smaller and frontier emerging markets, a niche asset class that provides diversification to more mainstream emerging markets (such as China) that investors are likely to already hold. These markets arguably resemble the opportunity presented to emerging market investors a generation ago, with favourable demographics, rapid economic growth and cheap valuations reflecting low allocations by global investors.

As discussed in the Performance section, managers Sam Vecht and Emily Fletcher have added significant long-term excess returns since the inception of BRFI, likely reflecting the good opportunities that skilled active managers can find in a niche asset class with limited analyst coverage. Recent years have been tougher, with global investors’ focus on large US and Chinese technology stocks seeing smaller emerging and frontier markets being overlooked. However, the trust has seen a return to form in 2021 driven both by good stock-picking and the rally in value sectors such as banks, oil and mining, which are prominent in BRFI’s opportunity set.

Longer term, the Portfolio contains stocks that should benefit from secular trends such as the expansion of nuclear power capacity (played via uranium miners), increased demand for lithium due to the electrification of cars, and increasing consumption in the world’s least developed countries. Despite these long-term prospects, strong performance and an attractive yield, BRFI is currently trading at a wide discount relative to its history (9.5% as at 19/10/2021). As discussed under Dividend, BRFI’s historical yield of 3.9% is comparable to the sort of yields available in the UK equity income sector and could be a helpful diversifier for income investors with substantial exposure to the UK.

Analyst's View

There are several reasons to consider owning BRFI. As a small and generally overlooked niche asset class, smaller emerging and frontier markets offer active managers a broad range of opportunities to add value, and Sam and Emily have a track record of doing just that. The countries within BRFI’s investment universe are themselves potentially attractive, with their currently low economic base providing plenty of scope for growth as their economies converge with the rest of the world. This is backed by favourable demographics, a factor that will act as a headwind for many developed and emerging countries in the years to come. Additionally, from a portfolio construction perspective BRFI acts as a diversifier within an emerging markets (EM) allocation, especially with the growing dominance of China, Taiwan and Korea within EM portfolios. This gives both growth and income investors an interesting set of options. If the cheaper valuations and long-term outlook for smaller emerging and frontier markets are preferred, BRFI could be held as a core EM allocation. Alternatively, within a broader EM portfolio BRFI could be used as a diversifier to complement more benchmark-aware EM strategies or single-country funds (such as China or India funds).

As discussed under Discount, BRFI is trading at a particularly wide discount relative to its history. In our view, given the long-term drivers of smaller emerging and frontier markets’ growth and the themes being expressed in the Portfolio, this is potentially an attractive entry point.

Bull Bear
Diversification benefits from exposure to niche markets
Exposed to global monetary tightening or a pandemic resurgence
Smaller emerging and frontier markets are relatively cheap and have substantial growth potential
Has a high OCF relative to peers, although its offering is highly differentiated
Inefficient markets provide opportunity for managers to add value
Managers can go long and short on stocks using derivatives, meaning effective gearing can be high at times
Continue to Portfolio

Fund History

29 Apr 2022 Stock picking in the forgotten 40
The world’s smallest markets are widely neglected by investors. Emily Fletcher, Co-Manager of the BlackRock Frontiers Investment Trust plc, asks whether a change of market environment might bring about a new era for these unloved gems...
22 Dec 2021 No humbug
Our analysts look back at a year of predictions, theories and ideas, and highlight those they think could matter most…
07 Dec 2021 Results analysis: BlackRock Frontiers
BRFI has delivered outstanding returns in the last financial year, combining strong capital returns and an attractive fully covered dividend…
10 Nov 2021 Fantastic growth funds (and where to find them)
We found them in India, Japan, frontier markets, healthcare and the global sector – and here they are…
10 Nov 2021 Fund Analysis
Opportunities in smaller emerging and frontier countries bring BRFI to the fore after China woes…
10 Nov 2021 Slides and Audio: BlackRock Frontiers
Download the presentation and listen to the audio from our 'Fantastic growth funds (and where to find them)' conference on 4 November...
01 Sep 2021 Winter is coming
Summer was a welcome opportunity for exhausted investors to turn their backs on the legion threats they face, but they haven't gone away and the days grow short - we examine four in detail...
25 Aug 2021 Is the UK’s debt a ticking time bomb?
Our analyst argues Rishi is right to worry about government debt and borrowing…
16 Jun 2021 Fund Analysis
BRFI still looks cheap despite good gains in the recovery…
16 Feb 2021 The Last Frontier: finding growth in smaller emerging markets
Smaller emerging markets have been left behind as investors have focused on a handful of high growth areas. As the crisis fades, investors are already starting to recognise that these areas may provide high growth at compelling valuations.
20 Jan 2021 Kepler's top-rated investment trusts for 2021
We update our annual quantitative ratings for investment trusts…
18 Dec 2020 Results analysis: BlackRock Frontiers
BlackRock Frontiers has seen a dramatic improvement in performance since its year end, and the managers are excited about the outlook…
09 Dec 2020 A bumper harvest?
Agricultural and industrial commodities have rallied strongly, but what are the implications for emerging market allocations...?
02 Dec 2020 Fund Analysis
BRFI’s portfolio is trading on a record low valuation, putting it in a potentially strong position for a COVID bounce…
11 Nov 2020 Now that's what I call a discount!
Presentations and audio from our conference focussed on discount opportunities in the investment trust sector…
11 Nov 2020 Slides and Audio: BlackRock Frontiers
View the presentation and listen to the audio from our 'Discounts in Focus' event on 05 November...
22 Oct 2020 Spotlight on discounts
As our event focussed on discounts approaches, we update our portfolio of discount opportunities and review discounts across the wider IT universe…
07 Oct 2020 Emerging markets: beyond China
Investors’ focus has been directed towards China as its weight in global indices grows, however, this may see them miss out on the growth, income, and diversification opportunities elsewhere...
21 Aug 2020 Fund Analysis
BRFI’s portfolio is trading on a record low valuation…
18 Jun 2020 Gimme shelter
As income investors brace for impact we ask which regions and trusts are less likely to cut their dividends in 2020…
16 Jan 2020 Drifting apart: how emerging markets have become less correlated
We examine how correlations between different emerging markets have evolved, and whether single country strategies could diversify returns going forward....
30 Dec 2019 Fund Analysis
BRFI offers a strikingly high yield from undervalued regions with strong growth potential…
21 Aug 2019 Exploring the next frontier
The world’s developing markets may look and feel like large emerging markets, but they bring something new for investors. The team at BlackRock explain why…
03 Jul 2019 Push-me pull-you
Two contrasting influences are dominating the outlook for Asian markets - we analyse them and how Asia trusts are positioning their portfolios in response...
10 Jun 2019 Fund Analysis
Sam Vecht's flagship emerging markets fund has kept pace with its new, more appropriate, benchmark so far in 2019 after a tricky start last year...
14 Nov 2018 Fund Analysis
BlackRock Frontiers is the leading fund for investors seeking exposure to the high development potential in frontier markets...
17 May 2018 Fund Analysis
Long-term capital growth from investment in companies operating in frontier markets...
19 Dec 2017 Fund Analysis
A high-quality trust managed by an experienced and well-resourced team that offers exposure to lowly correlated frontier markets
28 Jun 2017 Fund Analysis
A growth focused trust which invests in some of the world's most exotic markets, managed by a highly experienced team...
View all

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