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BlackRock Frontiers Investment Trust Indonesian positions continue their strong rebound

BlackRock Frontiers Investment Trust plc (LON:BRFI) have published the following portfolio update.

All information is at 31 May 2020 and unaudited.

Performance at month end with net income reinvested.

Share price3.6-13.0-27.9-31.2-3.826.0
Net asset value4.7-11.2-24.2-
Benchmark (NR)**5.1-5.6-17.8-5.016.939.2
MSCI Frontiers Index (NR)7.9-9.0-8.9-2.120.544.4
MSCI Emerging Markets Index (NR)2.8-3.9-2.53.928.932.6
US Dollars:
Share price1.6-15.7-29.3-34.0-21.90.3
Net asset value2.6-14.1-25.7-26.6-18.010.3
Benchmark (NR)**3.0-8.7-19.3-9.0-5.311.2
MSCI Frontiers Index (NR)5.7-11.9-10.6-6.2-2.414.5
MSCI Emerging Markets Index (NR)0.8-6.9-4.4-

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:118.92c
Net asset value – cum income:121.92c
Net asset value – capital only:96.19p
Net asset value – cum income:98.62p
Share price:91.40p
Total assets (including income):£238.5m
Discount to cum-income NAV:7.3%
Gearing range (as a % of gross assets):0-20%
Net yield*:6.4%
Ordinary shares in issue:241,822,801
Ongoing charges**:1.4%
Ongoing charges plus taxation and performance fee:1.4%

*The Company’s yield based on dividends announced in the last 12 months as at the date of the release of this announcement is 6.4% and includes the 2019 final dividend of 4.75 cents per share declared on 06 December 2019 with a pay date of 07 February 2020. Also included is the 2020 interim dividend of 2.75 cents per share announced on 28 May 2020 and due to be paid to shareholders on 26 June 2020.

**Calculated as a percentage of average net assets and using expenses, excluding performance fees and interest costs for the year ended 30 September 2019.

Gross market value as a % of net assets*Country
Gross market value as a % of net assets*
Consumer Discretionary16.9Thailand10.5
Consumer Staples12.5Vietnam9.6
Real Estate10.2Saudi Arabia9.5
Communication Services6.8Kazakhstan5.6
Utilities2.4United Arab Emirates4.2
Information Technology2.3Qatar4.1
Health Care2.0Pakistan3.9
Short positions-2.5Poland2.9
Pan-Emerging Europe1.3
Short positions-2.5

*reflects gross market exposure from contracts for difference (CFDs).

Market Exposure

Short 8.1 5.1 4.2 4.1 2.2 1.7 1.0 1.1 3.8 2.5 2.6 2.5

Ten Largest Investments

CompanyCountry of RiskGross market value as a % of net assets
Astra InternationalIndonesia4.1
PTT Exploration & Production PublicThailand3.6
Bank MandiriIndonesia3.5
United International TransportSaudi Arabia3.1
Halyk Savings BankKazakhstan2.9
Eastern TobaccoEgypt2.9
Vincom RetailVietnam2.8
LT GroupPhilippines2.8
Bank of the Philippine IslandsPhilippines2.6

Commenting on the markets, Sam Vecht and Emily Fletcher, representing the Investment Manager noted:

The Company’s NAV returned +2.6%1 versus its benchmark the MSCI Emerging ex Selected Countries + Frontier Markets + Saudi Arabia Index (“Benchmark Index”), which returned +3.0% in May2. For reference, the MSCI Emerging Markets Index ended the month +0.8% and the MSCI Frontier Markets Index +5.7%2 over the same period (all performance figures are on a US Dollar basis with net income reinvested).

Our universe of smaller emerging and frontier markets continued to rebound in May. These countries, which for the most part haven’t been the epicentre of rising COVID-19 cases, are supported by the rally in oil prices and are less impacted from the rise in US/China tensions (in some cases even beneficiaries). Meanwhile, May was a lacklustre month for Emerging Market (EM) equities in aggregate (+0.8%),  driven by underperformance of China and reversing the trend of the last few months.

The biggest contributors to performance in May were our positions in Indonesia and Vietnam for the second month running. Our Indonesian positions continued their strong rebound having previously lagged the recovery as the equity market moved to catch up with the rally seen in the foreign exchange market (FX) and fixed income markets.  Attribution was driven by our cyclical holdings in consumer discretionary, particularly auto parts conglomerate Astra International (+26.1%) and retailer Mitra Adiperkasa (+12.7%). In Vietnam, the biggest contributors were mall operator Vincom Retail (+19.8%), followed by information technology services company FPT (+11.2%).  Vietnam benefited from a strong COVID-19 record which has allowed the economy to start to reopen as well as trade flows continuing to benefit from renewed US/China tensions as Vietnam continues to take share in the global supply chain. We have been trimming our exposure at the margin to lock in profits. Our position in Kazakhstan financial Halyk Bank (+18.5%) was an additional contributor.

The largest detractor in May was our position in Malaysia, specifically our holding in British American Tobacco Malaysia (-13.6%) after Q1 earnings disappointed on weaker than expected volumes and market share. Our holdings in Egypt in construction contractor Orascom construction (-4.3%) and real estate developer Medinet Nasr (-16.2%) both detracted as concerns over the spread of COVID-19 in Egypt and its impact on the country’s financial standing weighed on the market. We have been trimming our weight in Egypt driven by the need for the Egyptian currency to devalue in the short term and the need for external financial support for the economy which will likely come with fiscal strings attached. Our position in Pakistan financial MCB Bank (-9.2%) was an additional detractor. 

In terms of recent portfolio changes we have been trimming Egypt, Vietnam and Pakistan. In Pakistan we have trimming back the position after good performance and mindful of risks around the country’s debt load and fiscal balance. We have been redeploying capital into Eastern Europe which looks interesting as a beneficiary of a large European fiscal stimulus directed primarily towards infrastructure spending. This is feeding into significant stimulus into Eastern Europe which is something we haven’t seen for a long time and is supportive of a number of positions in those markets. We have also reduced our underweight exposure in Saudi Arabia in part due to our favourable view on oil prices. We believe oil prices will normalise driven by a faster than expected demand recovery given evidence that personal car usage is higher post COVID-19 given the preference for driving over public transport. On the contrary supply remains constrained by the Organization of the Petroleum Exporting Countries (OPEC) as well as oil well shut-ins in North America which are unlikely to come back online until we see a much higher incentive price.

While smaller emerging and frontier markets are vulnerable to health and economic fall-out from COVID-19, data thus far on infection rate and fatalities gives some hope that the damage to life and economy will not be as pervasive as originally feared. We remain positive on prospects of select economies, where policy makers have taken upfront, prudent measures to contain COVID-19, where the FX debt situation is relatively manageable, that will benefit from lower oil price and whose currencies are not over-valued. More broadly, many of our markets look very compelling at current valuation, trading at sub 8x trailing price-to-earnings and in some cases close to global financial crisis levels. Despite the bounce, the portfolio is still around the lowest valuation levels that we have seen in the last ten years.


1BlackRock as at 31 May 2020

2MSCI as at 31 May 2020