Complete your registration today for a chance to win £50 John Lewis vouchers in our weekly draw Enter now
Kepler Trust Intelligence
Updated 18 Dec 2020
Save Article Download

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by BlackRock Frontiers. 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.

  • BlackRock Frontiers released its final results for the year ending 30 September 2020 last week, showing a decline in its NAV of 20%, relative to a fall of 15% from the benchmark – a bespoke index which tracks the emerging and frontier markets excluding the largest eight.
  • However, since the financial year end the trust has seen a sharp rise in absolute and relative performance as news of a COVID vaccine has lifted spirits, delivering NAV returns of 27.9% compared with a rise in the benchmark of 15.5% between the financial year end and 11 December 2020.
  • Having traded on a consistent premium for most of its recent life the trust started 2020 on a premium of 7.2%, but by its financial year end in September had moved to a discount of -4.9%. Although the discount has narrowed slightly since, it could still be a potentially attractive entry point for those seeking exposure to this highly differentiated strategy, with its unique focus on ‘truly emerging’ markets.
  • The revenue return per share for the year amounted to 5.05 cents (2019: 8.24 cents), with the Board declaring a final dividend of 4.25cents per share, totaling 7.00 cents for the year (2019:7.75cents). This represents an attractive yield of 5.8% as of the end of the reporting period.

Kepler View

The dramatic snap-back in the performance of BlackRock Frontiers since the news of a breakthrough on a vaccine for Coronavirus began to filter through underlines what could be an interesting entry point for investors seeking exposure to emerging markets, and puts the trust back on the front foot after a difficult year.

As we discuss in our detailed note on the trust, BRFI invests in ‘true’ emerging markets – ignoring the eight largest emerging economies which make up almost 90% of the average IA Global Emerging Markets fund according to Morningstar data - and investing instead in the smaller emerging markets and frontier markets, which includes countries like Indonesia, Vietnam and the Philippines.

Valuations in these countries have suffered during the flight to safety and liquidity which has accompanied the pandemic, and they have missed out on the waterfall of money which has poured into big tech and ecommerce, neither of which features heavily here.

Even as they begin to rebound valuations in smaller developing countries remain very low and we believe have the potential for room to run, particularly if the current obsession with tech and ecommerce begins to lose its sheen and growth focussed investors begin to seek pastures new.

Ordinarily, economic growth in these countries and stock market performance tends to be more endogenously driven and so less correlated to global peers. The exception is during global crises such as this one, the scale of which has seen all boats falling with the tide.

However, despite their apparent economic fragility compared to richer countries, many of the smaller developing nations have been more resilient to the pandemic. Populations in these countries are, on average, younger than those in the developed world or in the larger and better known ‘emerging’ countries which make up the bulk of most emerging market portfolios, making them more resilient to the worst effects of COVID which we now know are most potent among the elderly.

This has spared them the worst impacts of the pandemic from a public health perspective and, importantly, their inability to conjure up vast quantities of cash via debt issuance has – for once – been a blessing in disguise, meaning they have not embarked upon the immense debt spree which has been seen in Europe and the United States, and for which we will be paying for until our children are old and grey.

This combination of factors means that in our view the countries in BRFI’s portfolio are particularly sensitive to any global economic rebound whilst also, because they remain at relatively low valuations, equipped with some insulation against the downside should the recovery stumble.

A weaker dollar environment, which is possible especially if a Biden administration manages to implement a large fiscal stimulus, should also benefit BRFI’s universe. We think the rise in the net exposure in recent months and elimination of the short book shows how positive the managers are on the current opportunity.

Against this backdrop the current discount (-1.5%) – even though it has tightened in recent weeks – may well prove attractive as a potential entry point for some investors - given that for most of the last five years BRFI has traded on a premium to NAV.

Login to read the full article...

Kepler Trust Intelligence provides research and information for professional and private investors. In order to ensure that we provide you with the right kind of content, and to ensure that the content we provide is compliant, you need to tell us what type of investor you are.

Continue

Welcome to Kepler Trust Intelligence

Please enter a valid email address
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid email address
{{item.msg}}
Please check your email. If an account exists you'll be sent instructions on how to reset your password.
To ensure that we are able to provide content which is appropriate for you, please tell us a little about yourself.
Please choose an option
{{item.msg}}
Please enter a company name
{{item.msg}}
Please enter a location name
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a platform
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a trust
{{item.msg}}
?
The information contained herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States to or for the benefit of any United States person (being residents of the United States or partnerships or corporations organised under the laws thereof). The investment funds referred to herein have not been registered in the United States under the Investment Company Act of 1940 and units or shares of such funds are not registered in the United States under the Securities Act of 1933.
Please confirm
{{item.msg}}
Please select an option
{{item.msg}}
See benefits
A free Kepler Trust Intelligence account allows you to access premium content including the ‘Kepler View’ – our verdict on the trusts we cover – and historical research so you can see how our view has changed over time. An account also unlocks useful facilities like the ‘follow’ button which lets you keep track of the trusts you’re interested in and as a logged in user you can also download PDFs of our research, and choose the layout of the page you’re reading to suit your preference. We will not share your details unless you give us permission to do so, and we won’t bombard you with emails – we only send one a week.
Please select an option
{{item.msg}}
Please enter your first name
{{item.msg}}
Please enter your last name
{{item.msg}}
Please enter a valid email address
An account already exists with this email - have you forgotten your password?
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid password
{{item.msg}}
How will this information be used? Your answers help us to tailor our content to relevant investment trusts, and to ensure that the asset allocation and portfolio strategy research we produce is appropriate to our userbase.
Our Website uses Cookies Cookies are small text files held on your computer. They allow us to give you the best browsing experience possible and mean we can understand how you use our site. Some cookies have already been set. You can delete and block cookies, but parts of our site won’t work without them. By using our website you accept our use of cookies. For further information please refer to the Kepler Privacy Notice.
Need help?

One more thing...

Did you know, you can 'follow' individual trusts on Kepler Trust Intelligence? Use the functions below to set up alerts and we'll send you research and updates on your chosen trusts.

Suggested trusts to follow

Browse all funds
Need help?
Current Site Kepler Trust Intelligence is produced by the investment companies team at Kepler Partners and is the UK’s premier source of detailed qualitative research on investment trusts. Absolute Hedge is a market leading UCITS research database providing proprietary research on funds, themes and strategies in the UCITS space. Kepler Liquid Strategies is a Dublin domiciled UCITS fund platform featuring a number of best-of-breed fund managers. Kepler Partners is a corporate advisory and asset raising boutique specialising in the regulated funds market in Europe and investment trusts in the UK.