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BlackRock Frontiers (BRFI)

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Friday 17 February, 2017

BlackRock Frontiers

Portfolio Update


All information is at 31 January 2017 and unaudited.

Performance of ordinary share portfolio at month end with net income reinvested.

Three months
Three years
Share price 13.0 8.0 50.8 39.8 129.6 75.3
Net asset value 4.7 1.9 38.2 33.9 105.0 69.3
MSCI Frontiers Index (NR) 4.8 4.4 32.5 29.6 71.1 40.5
MSCI Emerging Markets Index (NR) 3.6 -2.1 41.4 36.3 26.6 17.7
US Dollars:
Share price 15.0 11.2 33.7 7.1 83.3 41.9
Net asset value 6.6 5.0 22.6 2.6 63.6 36.8
MSCI Frontiers Index (NR) 6.7 7.6 17.5 -0.8 36.4 13.4
MSCI Emerging Markets Index (NR) 5.5 0.8 25.4 4.4 0.9 -5.0

Sources: BlackRock and Standard & Poor’s Micropal

* 17 December 2010.

At month end
Ordinary Shares
US Dollar
Net asset value - capital only: 170.74c
Net asset value - cum income: 171.56c
Net asset value - capital only: 135.70p
Net asset value - cum income: 136.36p
Share price: 143.63p
Total assets (including income): £224.1m
Premium to cum-income NAV: 5.3%
Gearing: Nil
Gearing range (as a % of gross assets): 0-20%
Net yield*: 3.7%
Ordinary shares in issue: 164,333,108
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 3.7% and includes the 2016 final dividend of 4.00 cents per share declared on 22 November 2016, payable to shareholders on 17 February 2017 and the 2016 interim dividend of 2.60 cents per share announced on 16 May 2016 and paid to shareholders on 1 July 2016.

**Calculated as a percentage of average net assets and using expenses, excluding performance fees and interest costs for the year ended 30 September 2016.

The following relates specifically to the ordinary share portfolio.

Sector Analysis Gross assets(%)* Country Analysis Gross assets(%)*
Financials 38.6 Argentina 14.8
Consumer Staples 16.5 Kuwait 11.7
Telecommunication Services 15.7 Romania 11.2
Materials 9.5 Pakistan 10.2
Energy 7.2 Bangladesh 8.7
Utilities 7.1 Vietnam 8.0
Health Care 7.0 Kazakhstan 7.8
Information Technology 5.9 Sri Lanka 6.7
Industrials 3.8 Ukraine 6.6
Real Estate 2.2 Kenya 5.5
Consumer Discretionary 1.5 Morocco 5.1
            ----- Nigeria 3.5
Total 115.0 Egypt 3.2
----- Estonia 2.1
Short positions 0.0 Colombia 2.1
===== Turkey 1.9
Caribbean 1.8
Slovenia 1.7
Philippines 1.7
Saudi Arabia 0.7
Total 115.0
Short positions 0.0

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

Market Exposure

 2016 %
Long 102.2 108.1 109.2 108.8 110.5 103.4 105.7 104.0 106.4 102.3 108.4 115.0
Short  1.1  1.2  1.3  0.0  0.0  0.0  0.0  0.0  0.0  0.0  0.0  0.0
Gross 103.3 109.3 110.5 108.8 110.5 103.4 105.7 104.0 106.4 102.3 108.4 115.0
Net 101.1 106.9 107.9 108.8 110.5 103.4 105.7 104.0 106.4 102.3 108.4 115.0

Ten Largest Equity Investments

Company Country of Risk % of gross assets
Mobile Telecommunications Kuwait 5.3
MCB Bank Pakistan 5.1
Pampa Energia Argentina 4.1
Maroc Telecom Morocco 3.6
Banco Macro Argentina 3.6
Square Pharmaceuticals Bangladesh 3.4
Halyk Savings Bank Kazakhstan 3.3
S.N.G.N. Romgaz Romania 3.3
BRD Groupe Societe Generale Romania 3.0
Luxoft Ukraine 3.0

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

Frontier Markets were off to a great start in January, marking their best start to the year since 2013. The Company’s NAV rose by 6.6% over the month, relatively in line with the MSCI Frontier benchmark (on a US Dollar basis with net income reinvested) which rose by 6.7%. The MSCI Emerging Markets Index rose by 5.5% over the same period.

Performance was relatively spread out across countries, sectors, and names. Argentine utility, Pampa (+33%), was the largest contributor in January amid positive negotiations between President Macri and the oil workers union. These developments will help to increase visibility on project costs, while also raising natural gas prices to boost exploration and production; both seen as key steps in the administration’s plan to eliminate subsidies on electricity and gas rates. Pampa also benefited from the announcement of a substantial increase in electricity tariffs as Argentina seeks to continue to normalise pricing and increase investment in this sector.  For similar reasons, our decision to not hold vertically integrated energy company, YPF (+31%), detracted most.

Other notable stock movers during the month include Kazakh energy company, Kazmunaygaz which rose 27% off low valuation levels and Egyptian gold miner Centamin which rose 15% after reporting better than expected results.  Our underweight to Nigeria continues to benefit the Trust on a relative basis as the central bank’s decision not to devalue the Naira any further has resulted in a scarcity of USD available at the official rate, and a major dispersion between the official and black market Naira / US Dollar exchange rates. 

Kuwait’s performance surprised investors in January as the market gained +14%. The rally seems to have been driven by positive local sentiment around implementation of the long-awaited Kuwait National Development Plan and oil price stability. This has resulted in positive inflows from the market as many frontier funds reduce their historically underweight positions. Our position in Zain, the Kuwait-based mobile operator, contributed positively over the month (+21%), while our overall underweight to the country detracted somewhat on a relative basis. We have increased our overall Kuwaiti exposure, initiating two new positions in January in Burgan Bank and Kipco on the belief that both companies have reached attractive valuation levels.  Kenyan holding, Equity bank, was among the largest individual detractors due to uncertainty surrounding the upcoming presidential elections and a market rumour that regulation could be introduced which would cap fees on lending, a further disincentive for banks to grow their loan books. Off-benchmark positions in Egypt also detracted as the stocks traded down on the expectation of near-term, FX-related margin deterioration.

We have increased exposure to a number of holdings during the month, taking the gross long position on the trust to 115% and using the ability that we have to gear the trust to take advantage of attractive valuations within our underlying markets. 

Broadly, Frontier Markets continue to exhibit strong GDP growth and low government debt levels, and represent an opportunity to invest in companies with strong cash flow and high dividend yields, on some of the lowest valuations in the world.

17 February 2017


Latest information is available by typing on the internet, "BLRKINDEX" on Reuters, "BLRK" on Bloomberg or "8800" on Topic 3 (ICV terminal). Neither the contents of the Manager’s website nor the contents of any website accessible from hyperlinks on BlackRock’s website (or any other website) is incorporated into, or forms part of, this announcement.

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