BlackRock Frontiers bounces back

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BlackRock Frontiers bounces back

The BlackRock Frontiers Investment Trust’s return to form is further evidence the asset class is uncorrelated to broader emerging market equities, co-manager Emily Fletcher has said.

The £170.5m trust, run by Ms Fletcher and Sam Vecht, has returned 6 per cent year to date, at a time when emerging market indices have suffered – as of August 17, the MSCI Emerging Markets had lost 11.3 per cent this year.

With the MSCI Frontiers Index having fallen 7 per cent over the same period, stock selection has also helped the trust prosper in 2015, erasing the underperformance seen last year.

Ms Fletcher said: “Frontier markets don’t tend to hold lots of external debt, and when they do, that (debt) can be bilateral or multilateral, so their link to global capital markets can be lower than emerging markets’ own.”

Ms Fletcher said she had done little to change the trust’s “top down, bottom up” strategy of identifying attractively valued companies in favoured regions in the past 12 to 18 months, bar some changes related to the plummet in oil prices.

In the past year, she has reduced her positions in oil exporters Saudi Arabia and Nigeria. The price of a barrel of Brent crude has more than halved over the past 12 months to a current level of $48.

Ms Fletcher has also added to positions in Pakistan and Vietnam, not only because of the beneficial effect of falling oil prices on Pakistan’s oil imports, but also as a reaction to the economic reforms carried out in both countries.

Pakistan’s economy received a boost earlier this summer with an additional round of funding from the International Monetary Fund (IMF) after it passed a series of economic tests.

The IMF said this month that it expects the country’s economy to grow 4.5 per cent this year.

More generally, Ms Fletcher said frontier market investors can continue to benefit from several tailwinds, not least her assessment that several markets remain inexpensive.

Ms Fletcher claimed the risks in both frontier markets and emerging markets are “overpriced” and valuations are attractive in both areas.

She estimates that just $20bn (£12.7bn) of institutional assets have been invested in frontier markets, adding that the asset class remains “not well covered”.

She also believes that the trust’s performance has been reliant on improvements at the underlying companies in the portfolio, rather than an increase in valuations – meaning investors could benefit if these were to rise in future.

Ms Fletcher added: “We think valuations are extremely attractive. The valuations are at similar levels to when we started the trust [in 2010].”

Over three years the trust has returned 60.2 per cent, compared with 34.9 per cent from its benchmark, according to FE Analytics.