BLACKROCK FRONTIERS INVESTMENT TRUST PLC
All information is at 31 January 2014 and unaudited.
Performance at month end with net income reinvested
One Three Six One Three Since
month months months year years launch*
Sterling:
Share price 0.7% 1.1% 4.3% 26.3% 21.8% 25.4%
Net asset value 2.5% 6.2% 4.4% 23.5% 30.6% 26.4%
MSCI Frontiers Index (NR) 1.6% 2.5% 0.2% 14.0% 9.5% 8.4%
MSCI EM Markets (NR) -5.8% -11.2% -8.1% -13.3% -12.0% -13.7%
US Dollars:
Net asset value 1.7% 8.5% 13.2% 28.1% 34.1% 33.3%
MSCI Frontiers Index (NR) 0.9% 4.9% 8.6% 18.1% 12.3% 14.3%
MSCI EM Markets (NR) -6.5% -9.2% -0.3% -10.2% -9.7% -9.0%
Sources: BlackRock and Standard & Poor's Micropal
* 17 December 2010.
At month end
US Dollar:
Net asset value - capital only: 187.52c
Net asset value - cum income: 187.41c
Sterling:
Net asset value - capital only: 114.11p
Net asset value - cum income: 114.04p
Share price: 115.25p
Total assets (including income): £220.4m
Premium to cum-income NAV: 1.1%
Gearing: nil
Gearing range (as a % of gross assets): 0-20%
Net yield: 3.0%
Ordinary shares in issue: 150,621,621
*Yield calculations are based on dividends announced in the last 12 months as
at the date of the release of this announcement. The 2013 interim dividend of
2.00 cents per share and the special interim dividend of 3.40 cents per share
announced on 30 May 2013, paid to shareholders on 5 July 2013 together total
5.40 cents per share (3.45003 pence per share) are the total dividends for the
financial year ending 30 September 2013. The special dividend represents the
final dividend which is normally paid in March each year.
Benchmark
Sector Analysis Gross assets(%)* Country Analysis Gross assets(%)*
Financials 27.8 Nigeria 10.3
Energy 18.1 Qatar 9.9
Consumer Staples 11.0 United Arab Emirates 9.1
Telecommunication 9.2 Saudi Arabia 9.0
Health Care 9.0 Bangladesh 6.8
Industrials 7.6 Pakistan 5.6
Materials 6.5 Kazakhstan 5.5
Consumer Discretionary 4.8 Sri Lanka 5.5
Utilities 2.6 Kuwait 5.3
---- Iraq 3.9
Total 96.6 Oman 3.8
---- Vietnam 3.4
Short positions -1.7 Turkmenistan 3.1
==== Ukraine 2.9
Slovenia 2.2
Argentina 1.8
Romania 1.8
Estonia 1.5
Panama 1.4
Kyrgyzstan 1.3
Croatia 1.2
Pan Africa 0.7
United States 0.4
Kenya 0.2
----
96.6
====
Short positions -1.7
====
*reflects gross market exposure from contracts for difference (CFDs)
Market Exposure
28.02 31.03 30.04 31.05 30.06 31.07 31.08 30.09 31.10 30.11 31.12 31.01
2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2014
% % % % % % % % % % % %
Long 104.1 99.5 99.2 99.8 95.9 103.2 98.9 98.8 100.4 100.5 103.3 96.6
Short 1.2 1.2 1.2 1.1 2.5 3.0 3.3 1.4 1.6 1.6 1.5 1.7
Gross 105.3 100.7 100.4 100.9 98.4 106.2 102.2 100.2 102.0 102.1 104.8 98.3
Net 102.9 98.3 98.0 98.7 93.4 100.2 95.6 97.4 98.8 98.9 101.8 94.9
Ten Largest Equity Investments
Company Country of Risk % of gross
assets
Zenith Bank Nigeria 4.7%
Qatar National Bank Qatar 4.1%
Halyk Bank Kazakhstan 3.3%
Qatar Gas Transport Qatar 3.2%
Dragon Oil Turkmenistan 3.1%
Kuwait Food Kuwait 2.9%
Emaar Properties United Arab Emirates 2.8%
NMC Health United Arab Emirates 2.7%
Doha Bank Qatar 2.6%
Hub Power Pakistan 2.6%
Commenting on the markets, Sam Vecht and Emily Fletcher, representing the
Investment Manager noted:
Markets
The MSCI Frontier Market Index returned 0.9% in January. This contrasted with a
dismal month for mainstream emerging markets which fell 6.5%. (All calculations
are on a US dollar basis with net income reinvested.)
The United Arab Emirates (UAE) was the strongest performer over the month as
domestic liquidity continued to flow into the market amidst strong corporate
earnings. We have noted the positive sentiment surrounding both Abu Dhabi and
Dubai but are now beginning to signs of speculative excess that warrants
caution.
Bangladesh also performed well in January. Investors have shrugged off a tense
political environment, focussing instead on the strong earnings growth,
particularly in the consumer and health care sectors.
Argentina was once again the weakest performer over the month. Argentina's
currency, the peso, fell precipitously against the US dollar as the central
bank appeared to temporarily abandon support for the currency. The central bank
did resume intervention in currency markets but not before the peso suffered
its largest drop in value since 2002.
Portfolio
The Company's NAV increased by 1.7% in January, outperforming the benchmark by
0.8%. (All calculations are on a US dollar basis with net income reinvested.)
The largest individual contributor to performance was UAE property developer,
Aldar properties. Aldar has significantly deleveraged through government
support and the underlying real estate market is witnessing signs of revival,
given population growth, low prices and favourable government regulation.
Positions in Bangladesh were also strong performers during the month. In
particular, Health Care company, Square Pharmaceuticals, which released strong
results for the third quarter (which ended on 31st December 2013 - company
year-end is on March 2014). Growth in revenues, lower costs and higher
operating efficiency contributed to a 33% increase in profit compared to the
previous year.
The largest individual detractor from performance was Nigerian financial,
Zenith Bank. Nigerian banks remain under pressure from a combination of tighter
liquidity and the negative impact of rising regulatory and reserve
requirements. Zenith bank is well placed to weather short term turbulence,
given its exceptionally high liquidity and capital ratios.
Activity
The Company initiated a new position in Sri Lankan industrial, Chevron
Lubricants. The team is positive on the outlook for the Sri Lankan economy.
Inflation is subsiding, the fiscal deficit is declining and economic growth is
driving down the country's debt-GDP ratio. Chevron Lubricants is an
attractively valued stock, trading on 11x this year's earnings. The company
generates a 70% return on equity and pays out 100% of profit as dividends.
We took profits on Saudi supermarket operator, Al Othaim. The investment case
was predicated on strong like-for-like sales growth which materialised in the
results for the fourth quarter of 2013. We believe that the valuation is now
full considering the volatility of margins and have fully exited the position.
Outlook
A key tenet of the investment case for Frontier Markets is that they are more
diversified than most Emerging and Developed Market portfolios, given the vast
breadth of countries and sectors. It often comes as a surprise to investors
that the volatility of the MSCI Frontier Market Index has been lower than that
of both Emerging and Developed markets, which we believe is testament to the
diversification benefits of Frontier Markets.
In this regard we would stress how important it is for investors to use an
active manager who should be able to avoid some of the more obvious pitfalls.
An active manager is able to form a view of individual countries and have the
flexibility to change that view as circumstances dictate.
For instance, we have been consistently bullish on the UAE market since the
Trust launched in 2010. However, during January we substantially reduced our
exposure to the country. While the UAE economy in general is performing well
and Dubai is booming we are increasingly concerned about the level of
speculation in the market.
Eighteen months ago the stock markets in Abu Dhabi and Dubai were regularly
trading a combined $30-$40m per day, and occasionally considerably less. In
recent weeks it has not been uncommon to see over $1bn traded daily. This
increase in a volume has not principally been driven by institutional
investors, but rather by retail investors who had been highly active in 2004-5
and 2007-8, returning to the market. While history rarely repeats itself, we
cannot ignore the fact that a surge in daily volumes in 2005 and 2008, marked
market peaks. We are not yet close to the volumes, or valuations, we saw in
2008 and we do not anticipate a sharp fall in UAE property values, which
triggered the 2008 sell-off, however we see it as appropriate to reduce
exposure now.
Another region where we think it is important to sound a note of caution is
sub-Saharan Africa. While we think there is enormous long-term potential in
many of the countries in this highly varied and promising region, we are
concerned about the rate at which western portfolio money is being deployed,
with little regard to economic fundamentals.
While on global scale many investors have been concerned about the current
account deficits of the so-called 'fragile five', it is important to highlight
that the budget and current account deficits of Brazil, India, Indonesia, South
Africa and Turkey, are in percentage terms considerably smaller than many of
the numbers we see in sub-Saharan Africa. We find it strange that relatively
few of those investing in Africa highlight the potential risks of investing in
countries such as Ghana, Kenya, Mauritius, Tanzania, and Uganda which all have
current account deficits running at 8-15% of GDP as well as running substantial
budget deficits. While countries can handle large twin deficits for long
periods, we would be reluctant to suggest that African countries can ignore the
economic realities any better than their Latin American, European or Asian
peers.
Following the January 2014 month end we have zero exposure to the five countries
above and currently have just 8% in Nigeria, down from close to 15% 18 months
ago. We are concerned about what happens when the highly regarded head of the
central bank leaves office in several months, and see little value in a series
of industrial and consumer names that trade at very rich multiples.
Despite the paragraphs above, we see significant upside to many Frontier
Markets. There are a wide variety of stocks in countries as diverse as
Bangladesh, Estonia, Iraq, Romania, Pakistan, Qatar, Saudi, Sri Lanka and
Kyrgyzstan that offer significant growth, value and yield. While the economic
and indeed political situations in many of these countries are not without
risk, we feel that prices in these countries more than reflect the challenges
of doing business.
19 February 2014
ENDS
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any website accessible from hyperlinks on the Manager's website (or any other
website) is incorporated into, or forms part of, this announcement.