Final Results
BlackRock Frontiers Investment Trust plc
LEI: 5493003K5E043LHLO706
Annual Report and Financial Statements 30 September 2024
Performance record
The Company’s financial statements are presented in US Dollars. The Company’s shares are listed on the London Stock Exchange and quoted in British Pound Sterling. The British Pound Sterling amounts for performance returns shown below are presented for convenience. The difference in performance returns measured in US Dollars and in British Pound Sterling reflects the change in the value of British Pound Sterling versus the US Dollar over the period.
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| As at | As at |
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| US Dollar |
|
|
|
| Net assets (US$’000)1 | 406,243 | 363,598 |
|
| Net asset value per ordinary share (cents) | 214.57 | 192.05 |
|
| Ordinary share price (mid-market)2 (cents) | 194.50 | 175.76 |
|
|
| --------------- | --------------- |
|
| British Pound Sterling |
|
|
|
| Net assets (£’000)1,2 | 302,850 | 297,897 |
|
| Net asset value per ordinary share2 (pence) | 159.96 | 157.35 |
|
| Ordinary share price (mid-market) (pence) | 145.00 | 144.00 |
|
| Discount3 | 9.4% | 8.5% |
|
|
| ========= | ========= |
|
|
| For the year | For the year |
|
| US Dollar |
|
|
|
| Net asset value per share (with dividends reinvested)3 | +16.5 | +25.1 | +132.9 |
| Benchmark Index5,6 | +15.7 | +5.0 | +64.4 |
| MSCI Frontier Markets Index6 | +15.1 | +6.5 | +52.8 |
| MSCI Emerging Markets Index6 | +26.1 | +11.7 | +47.9 |
| Ordinary share price (with dividends reinvested)3 | +15.8 | +28.8 | +109.7 |
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| --------------- | --------------- | --------------- |
| British Pound Sterling |
|
|
|
| Net asset value per share (with dividends reinvested)3 | +6.0 | +14.3 | +169.8 |
| Benchmark Index5,6 | +5.3 | -3.9 | +89.7 |
| MSCI Frontier Markets Index6 | +4.7 | -2.6 | +77.6 |
| MSCI Emerging Markets Index6 | +14.7 | +2.2 | +71.9 |
| Ordinary share price (with dividends reinvested)3 | +5.4 | +17.7 | +142.6 |
|
| ========= | ========= | ========= |
1 The change in net assets reflects dividends paid and portfolio movements during the year.
2 Based on an exchange rate of US$1.3414 to £1 at 30 September 2024 and US$1.2206 to £1 at 30 September 2023.
3 Alternative Performance Measures, see Glossary in the Company’s Annual Report for the year ended 30 September 2024.
4 The Company was incorporated on 15 October 2010 and its shares were admitted to trading on the London Stock Exchange on 17 December 2010.
5 With effect from 1 April 2018, the Benchmark Index changed to the MSCI Emerging Markets Index ex Selected Countries + MSCI Frontier Markets Index. Prior to 1 April 2018, the Benchmark Index was the MSCI Frontier Markets Index. The performance returns of the Benchmark Index since inception have been blended to reflect this change.
6 Total return indices calculate the reinvestment of dividends net of withholding taxes.
Sources: BlackRock and LSEG Datastream.
Chair’s statement
Overview
Over the year to 30 September 2024, your Company’s Net Asset Value per share produced a total return in US Dollars of +16.5%, compared to an increase in the Benchmark Index of +15.7%, resulting in outperformance of +0.8%1. This means that your Company’s NAV has risen by +132.9% since launch, more than double the benchmark return of +64.4%. For British Pound Sterling based shareholders, the equivalent return for the year was +6.0%, with the Benchmark Index returning +5.3%, representing outperformance of +0.7%1.
Since the financial year end and up to close of business on 2 December 2024, the Company’s NAV has decreased by -2.2% compared with a decrease in the Benchmark Index of -5.7%, representing an outperformance of +3.5%. For British Pound Sterling based shareholders, the equivalent return for the financial year to date is +3.9%, with the Benchmark Index returning +0.2%, representing outperformance of 3.7%1.
Our portfolio managers provide a detailed description of the key contributors to and detractors from performance during the period, insight into the positioning of the portfolio and their views on the outlook for the forthcoming year in their report, which follows below.
I am delighted to tell you that the Company won the Investment Week Investment Company of the Year Award 2024 – Global Emerging Markets category for the third year in a row. The Company also won the CityWire Investment Trust Award 2024 - Global Emerging Markets Equities Trust. I am sure shareholders will join me in congratulating the investment team on these notable achievements.
Revenue return and dividends
The Company’s revenue return per share for the year amounted to 9.97 cents (2023: 8.38 cents). The Directors are recommending the payment of a final dividend of 6.00 cents per ordinary share (2023: 4.90 cents) in respect of the year ended 30 September 2024. Together with the interim dividend of 3.50 cents per share (2023: 3.10 cents), this represents a total of 9.50 cents per share (2023: 8.00 cents) and an increase of 18.8% over the previous year.
Subject to shareholder approval, this dividend will be paid on 14 February 2025 to shareholders on the register at close of business on 10 January 2025. The ex-dividend date will be 9 January 2025. The Company does not have a policy of actively targeting income; nevertheless, this return represents an attractive yield of 4.9% (please see the Glossary in the Company’s Annual Report for the year ended 30 September 2024 for the inputs to the yield calculation).
Fees and charges
Following its outperformance of the Benchmark Index during the financial year, the Manager generated a performance fee of US$3.5m for the year ended 30 September 2024. As per best practice, the performance fee structure is subject to a maximum cap and a high water mark. This mechanism requires the Manager to catch up any cumulative underperformance against the Benchmark Index since launch before a performance fee can be generated.
The Board recently conducted a comprehensive review of the Company’s investment management and performance fee arrangements, which included seeking a formal opinion on all aspects of the fee structure from an independent third party. As a result of this review, certain changes are being made to the fee arrangements. With effect from 1 October 2024, the management fee will be levied on the Company’s net asset value (previously the fee was levied on the Company’s gross assets, defined as the aggregate net assets of the long equity and CFD portfolios of the Company). In practice this will have minimal impact on the quantum of the fee due to the fact that the accounting basis for calculating the net asset value of the CFD portfolios means that gross assets often equate to net assets to the extent the Company is not leveraged through other means. However, it aligns the fee structure with broader market practice and has the benefit of being simpler to understand. In addition, a tiered fee structure will be introduced with effect from the same date, such that a fee of 1.1% per annum will be levied on the Company’s net assets up to US$650 million, reducing to 1% per annum on net assets above this amount. The Board notes that the US$650 million threshold for tiering is aligned to a British Pound Sterling equivalent threshold of £500 million, which is comparable to or lower than the five other trusts in the AIC Global Emerging Markets sector (the sector in which the Company sits) that have adopted a tiered fee structure. Following this review, the Board believes the fee structure is appropriate.
Further details of the Company’s costs and charges can be found in note 4 below and in the Glossary in the Company’s Annual Report for the year ended 30 September 2024.
Share capital management
For the year under review, the Company’s ordinary shares traded at an average discount to NAV of 8.5% and were trading at a discount of 9.1% on a cum-income basis at 2 December 2024, the latest practicable date prior to the issue of this report.
The Directors recognise the importance to investors of ensuring that the Company’s shares do not trade at a significant discount or premium to NAV. Accordingly, the Directors will consider the issue of shares at a premium or the repurchase at a discount to help balance demand and supply in the market. The Company also provides a five-yearly opportunity for shareholders to realise the value of their ordinary shares at the prevailing NAV less costs. The next such opportunity will occur in early 2026.
The Directors have been granted the authority by shareholders to buy back up to 14.99% of the Company’s issued share capital (excluding any shares held in treasury) and also to issue or sell from treasury on a non-pre-emptive basis up to 10% of the Company’s issued share capital. Both authorities expire on the conclusion of the forthcoming Annual General Meeting (AGM) to be held on Wednesday, 5 February 2025, at which time resolutions will be put to shareholders seeking a renewal of these powers. Further information can be found in the Directors’ Report in the Company’s Annual Report for the year ended 30 September 2024.
As at 30 September 2024, the Company had 189,325,748 ordinary shares in issue, excluding 52,497,053 shares held in treasury. No shares were bought back during the year. However, since the year end and up to 2 December 2024, the Company bought 25,000 ordinary shares back at an average price of 149.00p per share for a total cost of £37,000. All shares have been placed in treasury. No shares were issued during the year under review or post year end from 1 October 2024 up to the date of this report.
The Board monitors the Company’s discount to NAV closely and receives regular updates from the Manager and our corporate broker, Winterflood Securities. In the Board’s opinion, it is important to consider the discount in the context of wider market conditions, with investor sentiment and discounts being influenced by various external factors, including the war in Ukraine, the conflict in the Middle East and prolonged higher interest rates. Against this backdrop, the average discount for the investment company sector as a whole has recently exceeded 15%. The Company’s discount compares favourably to this level, as it does to the average discount of the AIC Global Emerging Markets sector which stood at 11.15% on 2 December 2024, the latest practicable date prior to the publication of this report.
The Board believes that the best way to encourage a narrowing of the discount at which the Company’s shares trade is to continue to deliver strong investment performance and to communicate the unique attractions of our investment proposition to both existing and new shareholders. To this end, the Board has recently initiated a project to scrutinise investors’ perception of the Company with the help of an external agency and this will enable us to refine our marketing strategy over the coming months.
Gearing
One of the advantages of the investment trust structure is that the Company can use gearing with the objective of increasing portfolio returns over the longer term. The Company utilised its ability to gear the portfolio through its CFD exposure during the year. As at the year end, net gearing stood at 4.0%. This compares with 12.0% at the start of the financial year, with the decrease reflecting timing differences on the back of profit taking prior to reinvesting the proceeds.
Board composition
As announced on 18 January 2024, Mr Hatem Dowidar was appointed a non-executive Director of the Company with effect from 7 February 2024. Hatem brings a wealth of relevant experience in frontier markets, both strengthening and complementing the skills of the existing Board. Hatem is based in the Middle East and through his role as CEO of a major telecommunications company operating in the region, he possesses in-depth knowledge of these markets. We welcome him and believe his expertise and on-the-ground market insight will be of great value to the Board.
As at 30 September 2024, the Board consisted of five independent non-executive Directors. As part of its succession planning, the Board regularly considers its composition to ensure that a suitable balance of skills, knowledge, experience, independence and diversity is achieved to enable the Board to discharge its duties most effectively. The Directors submit themselves for re-election annually and therefore all Directors will stand for either election or re-election at the forthcoming AGM.
Further information on the Directors’ backgrounds and experience can be found in the Company’s Annual Report for the year ended 30 September 2024.
Corporate governance
The Board takes its governance responsibilities very seriously and follows best practice wherever possible. The UK Code of Corporate Governance (the UK Code) requires enhanced disclosure setting out how we, as Directors, have fulfilled our duties, taking into account the wider interests of stakeholders in promoting the success of the Company.
As it does each year, and as required by the Corporate Governance Code, the Company undertook a comprehensive Board evaluation during the year. The overall conclusion was very positive in terms of the effectiveness of the Board and the skills, expertise and commitment of the individual Directors. The combination of a clear succession plan, structured search and selection process when making new appointments and thorough annual performance evaluation means that the Board remains confident that each Director is discharging their role effectively.
The Board is cognisant of the risk of “overboarding” and has considered the time commitment required by the Directors’ other roles, taking into account their nature and complexity. The Board reviews this information annually, for each Director to ensure that all Directors have sufficient capacity to carry out their role effectively. Before recommending a Director for re-election, their independence, attendance record and ongoing commitment to the affairs of the Company are also considered.
Board diversity
I am pleased to report that the Board is compliant with the recommendations of the Parker Review and the FTSE Women Leaders Review and, at the date of this report, we have a 60:40 female to male gender ratio. In accordance with the Listing Rules, we have also disclosed the ethnicity of the Board and our policy on matters of diversity. The disclosure can be found in the Company’s Annual Report for the year ended 30 September 2024.
Environmental, Social and Governance (ESG) considerations
The frontier markets in which the Company can invest are home to over three billion of the world’s population and through our investments we bring much needed capital to markets largely overlooked by developed world investors.
Material ESG issues can present both opportunities and risks to long-term investment performance. While the Company does not have an ESG investment objective or exclude investments based only on ESG criteria, ethical and sustainability issues are considered as part of the investment process. Your Board is committed to diligent oversight and, as such, during the year under review, we introduced measures to improve our understanding of ESG factors within the portfolio as well as the nature and frequency of engagement with investee companies.
Further information can be found in the Company’s Annual Report for the year ended 30 September 2024.
Annual general meeting
This year’s AGM will be held in person at 12:30 p.m. on Wednesday, 5 February 2025 at the offices of BlackRock at 12 Throgmorton Avenue, London, EC2N 2DL. Details of the business of the meeting are set out in the Notice of Annual General Meeting in the Company’s Annual Report for the year ended 30 September 2024.
Prior to the formal business of the meeting, our Investment Managers will make a presentation to shareholders. This will be followed by a question and answer session. Shareholders who are unable to attend the meeting in person but who wish to follow the AGM proceedings can do so via a live webinar this year. Details on how to register, together with access details, will be available shortly on the Company’s website at: www.blackrock.com/uk/brfi. It is not possible to attend, speak or vote via this medium and it is solely intended to provide shareholders with the ability to watch the proceedings.
Additionally, if you are unable to attend you can exercise your right to vote by proxy or appoint a proxy to attend in your place. Details of how to do this are included on the AGM Proxy Card provided to shareholders with the annual report. If you hold your shares through a platform or nominees, you will need to contact them and ask them to appoint you as a proxy in respect of your shares in order to attend, speak and vote at the AGM. Further information on the business of this year's AGM can be found in the Notice of the Annual General Meeting in the Company’s Annual Report for the year ended 30 September 2024.
The Board very much looks forward to meeting shareholders and answering any questions you may have on the day. We hope you can attend this year’s AGM.
Shareholder communication
I was delighted to offer my first meetings as Chair to several of our shareholders during the year. As always, it is invaluable to share views on the Company as well as the wider sector and I look forward to staying in regular dialogue going forward.
We appreciate how important access to up to date information is to our shareholders. To supplement our Company website, we continue to offer shareholders the ability to sign up to the Trust Matters newsletter which includes information on the Company as well as news, views and insights. Further information on how to sign up is included on the inside cover of the Company’s Annual Report for the year ended 30 September 2024.
In order to facilitate greater attendance and participation at the Company’s AGM, I have sought to engage with shareholders who hold their shares through an intermediary or platform via the provisions of Section 793 of the Companies Act 2006. The Board encourages all shareholders to either attend the AGM or exercise your right to vote by proxy. The Board is also aware that certain execution only investment platforms are now providing shareholders with the ability to vote electronically. The Board encourages shareholders to take advantage of this functionality where it is available to you.
The Board takes its responsibilities very seriously and is committed to exercising the highest standard of corporate governance. It regularly considers the views of its major shareholders, offering to meet with them annually, and seeks to engage with all shareholders where possible. Should shareholders wish to contact me, you can do so by emailing me at chairbrfi@blackrock.com or by writing to the Company Secretary at the address given in the Company’s Annual Report for the year ended 30 September 2024.
Outlook
The Company continues to provide shareholders access to fast growing and high quality companies operating in a diverse range of fascinating countries. These more specialist markets are often under researched and can therefore trade at very low valuations, providing a rich opportunity set for experienced investors. Our managers note that most of the key markets in our investment universe performed well this year, across Asia, the Middle East and Europe. They also describe positive political and economic reform in several countries, presenting them with a more stable and benign environment for investment. Frontier market central banks are in many cases further along the easing cycle than the developed economies and already well into the growth phase of the cycle. This, combined with an investment universe of countries with favourable demographics, a growing and more affluent middle-class, relatively low debt and low stock market valuations, both versus developed markets and their own history, presents an ever more compelling investment case for frontier markets. In addition, alongside capital growth, the Company’s dividend yield remains a valuable element of our investment proposition.
As we enter the start of our next financial year, our portfolio managers are enthused by the breadth of the opportunity set, noting the improving fundamentals of several countries in which they have not invested for several years such as Egypt, Kenya, Nigeria, Pakistan and Sri Lanka. Against this improving macroeconomic backdrop, our portfolio managers continue to execute their long-established investment philosophy and process with great expertise and dedication. We believe they are uniquely placed to navigate the Company through these interesting and dynamic markets, unearthing hidden gems and providing investors with unrivaled access to the best frontier markets can offer.
KATRINA HART
Chair
4 December 2024
1 All numbers are stated with dividends reinvested.
Investment Manager’s Report for the year ended 30 September 2024
Market review
2024 marks yet another eventful year for our universe and emerging markets more broadly, both from a political and economic perspective. General elections have taken place across many countries in our universe and we have witnessed political leaders transition. We have seen the adoption of more orthodox monetary policies in countries such as Egypt and Turkey in an effort to fight inflationary pressures. More recently, we also observed the US Federal Reserve (Fed) embark on its long-awaited rate cutting journey and China announced an unexpected policy pivot, introducing stimulus measures to help reflate the economy. These developments provide a constructive backdrop for emerging markets broadly and, in particular, smaller emerging markets continue to reap investments and benefit from increased geopolitical polarisation. Therefore, we remain optimistic on the outlook for our investment universe after a positive last twelve months.
Earlier this year, we communicated how some of the smaller markets within our universe have implemented various policy reforms to stabilise their economies and attract investment. One such country we highlighted was Bangladesh, where the regulators removed price floor restrictions for most stocks in January 2024, paving the way for broader market participation. Since then, political change has dominated the news. Prime Minister Sheikh Hasina of the incumbent Awami League was forced to resign in early August 2024 following wide-spread protests. Muhammad Yunus, the former Nobel Peace Prize-winner, took over as head of Bangladesh's interim government. Bangladesh is a country with tremendous potential where a small amount of capital and investment can go a long way. A clean technocratic government should set the stage for a renewed investment cycle in Bangladesh.
Elsewhere in South Asia, Pakistani authorities recently agreed a 37-month Extended Fund Facility with the International Monetary Fund (IMF) worth about US$7 billion which will support their ongoing efforts to stabilise the economy. Prior to this agreement, the government had announced an ambitious budget for fiscal year 2024-25 which targets an increase in tax collection of 40% year-on-year to reduce the fiscal deficit to 5.9% of Gross Domestic Product (GDP), a drop from 7.5% in the previous year. Whilst substantial challenges remain, we are encouraged by the extent of reform envisaged.
In terms of performance, most of the markets within our universe have done well. Pakistan was the best performing market in Asia, returning +83.0%, helped by the US$3 billion IMF interim programme that was secured in June 2023 and subsequently upgraded to a US$7 billion Extended Fund Facility with strict reform criterion. Malaysia (+35.5%) and the Philippines (+22.7%) also did well. Bangladesh (-9.5%) lagged on the back of the significant political turmoil described above.
In Europe and the Middle East (EMEA), Poland (+45.7%) and Hungary (+36.4%) were the stand-out performers helped by declining inflation and a buoyant macroeconomy. Declining interest rates and strong corporate earnings growth have been supportive. By contrast, Egypt (-7.3%) and Turkey (+6.8%) underperformed the rest of the region. While the performance of Egypt's equity market remains challenged, we believe that the US$35 billion investment secured from the United Arab Emirates and US$8 billion new agreement with the IMF from earlier this year will bode well for the economy and the Egyptian capital markets.
In Latin America, Argentina was once again the stand-out performer, climbing by +90.6%. The market has been excited about President Milei's push for economic reforms which, coupled with easing inflation pressures and rising commodity prices, has helped support the stock market despite the concerns on the equilibrium exchange rate; Peru was also among the top performing markets, climbing by +57.4%, helped by higher copper prices.
From the road
Over the past 12 months, our team has travelled extensively across emerging and frontier markets. Travel helps us form differentiated insights, where we look to understand the entire ecosystem around companies and countries. We speak to customers, competitors, suppliers, trade unions, journalists, students, professors, as well as diplomatic and political entities and individuals to form a comprehensive view of the top-down and the bottom-up.
These travels often take us away from the well-trodden investment path to places such as Guyana, Peru, Egypt, Kenya and Nigeria. We have also visited countries such as Bangladesh, Malaysia, Indonesia, Philippines and Thailand in Asia as well as Kazakhstan, Georgia and Saudia Arabia during the past 12 months.
Indonesia has seen a smooth transition to a new government under President Prabowo who has retained some seasoned cabinet members from President Jokowi’s administration, most notably Minister of Finance, Sri Mulyani. This has allayed some market speculation regarding some of the larger expenditure plans of the new administration and it also ensures continuity for in-progress reform within the state-owned-enterprises. Meanwhile, the external accounts of the country remain healthy with a small current account deficit that should be funded with foreign direct investment. The consumer sector has suffered from some of the uncertainty from the election process as well as higher interest rates. While concerns from the former are now reduced, the latter is still impacted by movements in global interest rates post the US presidential election. This has impacted liquidity conditions in the banking sector in the country and we are monitoring this closely. In the background, the Indonesian stock market remains relatively inexpensive given the country’s prospect of sustainable high single digit nominal growth and we are cautiously optimistic for the new year.
Saudi Arabia continues to undergo a significant social and labour force transformation. Both of these should enable greater productivity and support economic growth in the kingdom over the long-term. In the current energy pricing regime, the balance of payments for the country looks manageable, however, the fiscal account look stretched. For the recently announced 2025 budget, the break-even oil price (at current run-rate of production and export) is estimated at approximately US$90/bl, well above the current price of circa. US$70/bl. In addition, the liquidity in the domestic banking system is constrained with elevated loan-deposit ratios. Therefore, we expect the government to rationalize its expenditure plans. In particular, we expect some of the large ticket megaprojects to be revisited and reprioritized. The initial indications from the Ministry of Finance confirm the same. Therefore, we are cautious on the economic outlook for the kingdom for next year and expect more muted markets as the local economy softens.
Guyana’s GDP has grown by approximately 300% over the last four years, driven by its substantial oil reserves. There, we met with a range of stakeholders, including US diplomats, to better understand the investment opportunities on the ground in this fast-growing economy. Our goal is to be at the forefront and act as first movers when significant opportunities arise, for which our travels serve as a key tool. Peru is a country where we have been running an underweight position for most of this year, due to political and economic uncertainty on the ground. Our visit there reinforced our view of the challenging political landscape where both the congress and the president have record low approval ratings. Despite this, the economy is relatively stable, with inflation at 2.4% and the best trade balance in a decade. It is also a country that is benefitting from increased geopolitical fragmentation, exemplified by COSCO Shipping Lines’, the Chinese state-owned conglomerate, US$3.5 billion investment in the Chancay port in Peru.
The team visited Malaysia in July 2024, and this is yet another example of a market benefitting from increased geopolitical fragmentation, as well as the spill-over for power demand from Singapore. We saw evidence of re-shoring across various sectors, particularly in parts of the semi-conductor supply chain as both Chinese and US companies take advantage of the existing ecosystem in Malaysia and the availability of affordable land, power capacity and skilled labour. We maintain exposure to the semi-conductor supply chain in Malaysia and continue to search for new bottom-up opportunities to take advantage of the spill-over from Singapore.
We visited Thailand recently which was timely given the shift in the political backdrop there. The election of Paetongtarn Shinawatra as Thailand's prime minister represents a return of her family's political dynasty following the previous ousting of her father (Thaksin Shinawatra) and aunt (Yingluck Shinawatra). Given some political stability with the Move Forward party sidelined, there have been announcements of stimulus (handouts) to offset weak tourism revenues, high leverage at households, and persistent asset quality problems in the banking sector. While such fiscal measures by the government may offer short-term respite, we maintain our view that the country remains in a tough spot structurally.
Portfolio review
In the 12 months to 30 September 2024, the Company’s NAV and share price returned 16.5% and 15.8% respectively, (on a US Dollar basis with dividends reinvested), outperforming the Benchmark Index (the MSCI Frontier + Emerging Markets ex Selected Countries Index) which returned 15.7%. Over the same period the MSCI Emerging Markets Index returned 26.1% and MSCI Frontier Markets Index returned 15.1%. Since inception in December 2010, the Company’s NAV and share price have returned 132.9% and 109.7%, respectively, compared with 64.4% on the Benchmark Index. For reference, the MSCI Frontier Markets Index and the MSCI Emerging Markets Index have returned 52.8% and 47.9%, respectively (all percentages in US Dollar terms with dividends reinvested).
Several stocks selected across a wide variety of markets did well. Turkish gold mine operator, Eldorado Gold (+94.4%), was the best performing stock over the period, helped by soaring gold prices. The price of the precious metal has rallied this year in response to increasing geopolitical tensions, particularly in the Middle East, and in anticipation of lower real interest rates from the Fed. European financials exposure through PKO Bank Polski (+68.1%) and National Bank of Greece (NBG) (+67.4%) also did well. NBG reported impressive first half results for 2024, showing a 27.0% increase in core profits compared to the same period last year.
In Argentina, our off-benchmark position in energy company, Vista Energy (+46.5%) was again among the top contributors at the company level, having success in developing the Vaca Muerta shale site in Argentina. Within the region, Bancolombia (+30.0%), was another strong performer.
Strong stock selection within Asia was also additive to returns over the period. The largest Islamic bank in Indonesia, Bank Syariah (+88.7%), was among the top performers in the region, after the company delivered strong profit growth in the first half of 2024 and demonstrated significant runway to gain share. More recently, the stock also gained momentum as concerns about the fiscal trajectory of the new government were mitigated by clarifications from the economic transition team. Another bank that did well was Metrobank (+55.3%) in the Philippines. Vietnamese technology services provider FPT (+68.1%), was another strong performer. The stock rallied on the news of a co-investment with Nvidia in a factory in Vietnam and has benefitted from artificial intelligence (AI) and the technology sector momentum more broadly. This is a business that is predominantly offering higher value add services such as digital transformation and cloud migration, and we recognise FPT’s unique position as the only major technology outsourcing business in Vietnam. Another positive contributor was our holding in Sea Ltd (+52.2%), a Singapore based global consumer internet company, which rose on the back of strong second quarter results.
On the flipside, exposure to technology services company, EPAM Systems (-22.2%), weighed on performance amid weaker full year guidance. The company has indicated that it will take time for AI to impact its revenues. We continue to hold the stock as we believe the company should benefit from a potential resolution of the war in Ukraine, with a significant number of its employees in the region. Another detractor was the Hungarian low-cost carrier Wizz Air Holdings (-17.0%). The stock fell after cutting its earnings guidance. The company has been impacted by engine issues at its supplier Pratt & Whitney, resulting in grounded planes and higher leasing costs, as well as a weaker outlook for fares in the EMEA region. Philippines based resort and casino operator Bloomberry (-19.2%) also hurt performance. The stock traded down despite meaningful earnings improvement as its new property continues to ramp up.
Investment activity
We have reduced our overall exposure to Latin America. In Chile, we exited pulp and paper company Empresas CMPC on the back of relative performance. Pulp prices went up on supply disruptions and we believe the overall market will become increasingly oversupplied going forward. We also exited lithium producer SQM given concerns of over-supply in the lithium market. In Argentina, we became sceptical of President Milei’s ability to successfully push through reforms and the monetary policies implemented seemed conflicted, therefore, we exited both Vista Energy and oil company YPF. The former has been a longstanding holding in the Company and had done exceptionally well. We continue to watch Argentina macro-economic reform as it unfolds and may revisit stocks depending on our findings.
We have added exposure to some of the smaller markets within our universe, including Bangladesh and Pakistan. In Bangladesh, we initiated a position in a commercial bank, BRAC Bank, reflecting our positive macro view on the country post the government change. We are also positive on the outlook for Pakistan more broadly and believe that the economy has likely bottomed out. As such, we initiated a position in Lucky Cement, which is one of Pakistan’s largest conglomerates and lowest cost cement producer trading on x3 price-earnings multiple.
We have added to Turkey and initiated a position in Turkish commercial bank Türkiye İş Bankası on the view that disinflation is finally coming through. More recently, we also increased our exposure to Hungary by topping up our holding in OTP Bank as we believe the country should benefit from a resolution to the war between Russia and Ukraine.
Outlook
As higher global interest rates continue to feed through into the real economy, we expect some moderation of demand in developed markets. The commencement of the Fed's easing cycle should be a net positive for emerging market assets, particularly amid reassurance that the September 50 basis points rate cut was to preemptively manage slowing growth and labour dynamics in the US. We continue to see improving activity levels in some frontier and smaller emerging markets. With inflation falling across many countries within our universe, rate cuts have started to materialise. This is a good set up for domestically oriented economies to see a cyclical pick up.
We have initiated small positions in a number of countries where we have not been invested for some time, including Bangladesh, Egypt, Kenya and Pakistan. With a combination of COVID-19, inflation and high global interest rates, the past few years have been difficult for smaller countries that are reliant on borrowing externally to fund their growth. However, we believe that these countries, having been through a recession already, unlike the West, are now likely at the point where they start to see economic growth pick up. As per our macro process, we think that capturing these turning points can be very lucrative for investors.
Given this backdrop, we remain positive on the outlook for smaller emerging and frontier markets relative to developed markets and believe that the commencement of the Fed’s easing cycle will allow for central banks within our universe to continue easing, which should be supportive of domestic activity levels. We find significant value in currencies and equity markets across our investment opportunity set, and we are particularly excited about the many opportunities we are seeing in some of the smaller markets. Our investment universe, in absolute and relative terms, also remains under-researched and we believe this should present compelling alpha opportunities.
SAM VECHT, EMILY FLETCHER AND SUDAIF NIAZ
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
4 December 2024
Ten largest investments1 as at 30 September 2024
Together, the Company’s ten largest investments represented 35.0% of the Company’s portfolio as at 30 September 2024 (2023: 32.2%).
1 = Bank Central Asia (2023: 1st)
Financials (Indonesia)
Portfolio value: US$20,220,000
Percentage of net assets: 5.0% (2023: 4.6%)
Bank Central Asia is an Indonesian commercial bank headquartered in Jakarta. It is the largest private bank in the country, offering commercial banking and other financial services.
2 + Emaar Properties (2023: 6th)
Real Estate (United Arab Emirates)
Portfolio value: US$17,927,000
Percentage of net assets: 4.4% (2023: 2.9%)
Emaar Properties is an Emirati real estate developer. The company is involved in property investment, development, shopping malls, retail centres, hospitality and property management services, and serves customers in the UAE.
3 - Saudi National Bank Corporation2 (2023: 2nd)
Financials (Saudi Arabia)
Portfolio value: US$16,088,000
Percentage of net assets: 4.0% (2023: 4.2%)
Saudi National Bank Corporation is a commercial bank based in Saudi Arabia. The bank offers current, savings, time, and other deposit accounts, auto leases, home financing, corporate loans, currency exchange, money transfer, asset management, share brokerage, initial public offering subscription, and private banking services.
4 + OTP Bank (2023: 26th)
Financials (Hungary)
Portfolio value: US$14,477,000
Percentage of net assets: 3.6% (2023: 2.0%)
OTP Bank is the leading financial institution in Hungary, providing a wide range of retail, private, and commercial banking services. The bank offers savings and current accounts, personal and corporate loans, credit and debit cards, and investment products. OTP Bank is known for its innovative digital banking solutions and extensive network of branches and ATMs across Hungary.
5 + FPT2 (2023: 7th)
Information Technology (Vietnam)
Portfolio value: US$13,598,000
Percentage of net assets: 3.3% (2023: 2.8%)
FPT is Vietnam’s largest information technology services company. The core business focuses on consulting, providing and deploying technology and telecommunications services and solutions.
6 + CP All (2023: 8th)
Consumer Staples (Thailand)
Portfolio value: US$12,673,000
Percentage of net assets: 3.1% (2023: 2.8%)
CP All is a convenience store operator based in Thailand. It also operates wholesale business, retail business and mall, payment centres and related supporting services. The convenience stores are operated under the 7-Eleven trademark.
7 + Etihad Etisalat2 (2023: n/a)
Communication Services (Saudi Arabia)
Portfolio value: US$12,558,000
Percentage of net assets: 3.1% (2023: nil%)
Also known as Mobily, this is a Saudi Arabia-based telecommunications operator. The company manages, installs, and operates telephone networks, terminals, and telecommunication unit systems, as well as sells and maintains mobile phones and telecommunication units in Saudi Arabia.
8 - JSC Kaspi (2023: 3rd)
Financials (Kazakhstan)
Portfolio value: US$12,443,000
Percentage of net assets: 3.1% (2023: 3.2%)
JSC Kaspi is the largest payments, marketplace and fintech ecosystem in Kazakhstan. The company has seen strong growth particularly in its marketplace and payments verticals. The company began as a bank but expanded into peer-to-peer payments and online marketplaces, particularly proving vital for businesses during the lockdowns of 2020. The company is working on expanding into other markets in Central Asia.
9 + Bank Negara Indonesia (2023: n/a)
Financials (Indonesia)
Portfolio value: US$11,659,000
Percentage of net assets: 2.9% (2023: nil%)
Bank Negara Indonesia (BNI) is an Indonesian state-owned bank established in 1946. It provides a variety of financial services, including consumer banking, corporate banking, credit cards, investment banking, and mortgage loans. BNI has a significant presence in Indonesia and operates branches in several international locations, including London, New York, and Tokyo.
10 + Eldorado Gold (2023: 23rd)
Materials (Turkey)
Portfolio value: US$10,021,000
Percentage of net assets: 2.5% (2023: 2.0%)
Eldorado Gold is a Canadian mid-tier gold and base metals producer with over 30 years of experience in building and operating mines. The company has mining, development, and exploration operations in Turkey, Canada, and Greece.
1 Gross market exposure as a % of net assets.
2 Exposure gained via contracts for difference (CFDs) only.
Percentages shown are the share of net assets.
The market value shown is the gross exposure to the shares through equity investments and long derivative positions. For equity investments, the market value is the fair value of the shares. For long derivative positions, it is the market value of the underlying shares to which the portfolio is exposed via the contract.
Percentages in brackets represent the portfolio holding as at 30 September 2023.
Symbols (+, - and =) indicate the change in the relative ranking of the position in the portfolio compared to its ranking as at 30 September 2023.
Portfolio analysis as at 31 March 2024
Country allocation: Absolute weights (Gross market exposure as a % of net assets)1
| Indonesia | 15.5 |
| Saudi Arabia | 14.3 |
| Philippines | 8.6 |
| United Arab Emirates | 8.3 |
| Thailand | 7.3 |
| Hungary | 6.7 |
| Kazakhstan | 6.0 |
| Poland | 5.7 |
| Turkey | 4.8 |
| Pakistan | 4.1 |
| Kenya | 3.5 |
| Vietnam | 3.3 |
| Bangladesh | 3.2 |
| Czech Republic | 2.5 |
| Singapore | 2.4 |
| Greece | 2.3 |
| Georgia | 2.0 |
| Egypt | 1.8 |
| Multi-International | 1.8 |
| Malaysia | 1.8 |
| Chile | 1.6 |
| Qatar | 1.4 |
| Cambodia | 0.9 |
| Argentina | 0.7 |
| Romania | 0.7 |
| Colombia | 0.6 |
Country allocation relative to the Benchmark Index (%)1
| Indonesia | 5.4 |
| Hungary | 5.3 |
| Kazakhstan | 5.2 |
| Philippines | 5.2 |
| Pakistan | 3.7 |
| Kenya | 3.2 |
| Bangladesh | 3.0 |
| Singapore | 2.4 |
| Georgia | 2.0 |
| Multi-International | 1.8 |
| Czech Republic | 1.7 |
| Egypt | 1.4 |
| United Arab Emirates | 1.2 |
| Cambodia | 0.9 |
| Turkey | 0.9 |
| Vietnam | 0.9 |
| Argentina | 0.7 |
| Poland | 0.4 |
| Colombia | 0.0 |
| Cyprus | 0.0 |
| Serbia | 0.0 |
| Lithuania | 0.0 |
| Luxembourg | -0.1 |
| Estonia | -0.1 |
| Sri Lanka | -0.1 |
| Tunisia | -0.1 |
| Mauritius | -0.2 |
| Jordan | -0.2 |
| Bahrain | -0.2 |
| Croatia | -0.3 |
| Oman | -0.4 |
| Romania | -0.5 |
| Greece | -0.5 |
| Slovenia | -0.5 |
| Other | -0.8 |
| Chile | -0.9 |
| Morocco | -1.1 |
| Peru | -1.8 |
| Thailand | -1.9 |
| Qatar | -3.4 |
| Kuwait | -4.1 |
| Malaysia | -7.4 |
| Saudi Arabia | -8.9 |
1 Includes exposure gained through equity positions and long and short CFD positions
Sources: BlackRock and LSEG Datastream.
Sector allocation: Absolute weights (Gross market exposure as a % of net assets)1
|
| % |
| Financials | 45.8 |
| Industrials | 11.9 |
| Real Estate | 10.4 |
| Communication Services | 8.7 |
| Consumer Staples | 8.6 |
| Materials | 8.4 |
| Consumer Discretionary | 5.5 |
| Information Technology | 5.1 |
| Energy | 4.6 |
| Utilities | 1.4 |
| Health Care | 1.4 |
Sector allocation relative to the Benchmark Index (%)1
|
| % |
| Real Estate | 6.3 |
| Industrials | 5.4 |
| Information Technology | 3.5 |
| Consumer Staples | 2.8 |
| Consumer Discretionary | 1.5 |
| Financials | 1.2 |
| Communication Services | 0.5 |
| Materials | -1.1 |
| Health Care | -1.9 |
| Energy | -2.4 |
| Utilities | -4.0 |
1 Includes exposure gained through equity positions and long and short CFD positions
Sources: BlackRock and LSEG Datastream.
Investments as at 30 September 2024
Equity portfolio by country of exposure
|
| Principal |
|
| Gross market |
| Bank Central Asia | Indonesia | Financials | 20,220 | 5.0 |
| Bank Negara Indonesia | Indonesia | Financials | 11,659 | 2.9 |
| Ciputra Development | Indonesia | Real Estate | 9,805 | 2.4 |
| Astra International | Indonesia | Industrials | 9,266 | 2.3 |
| Bank Syariah | Indonesia | Financials | 6,709 | 1.6 |
| Mitra Adiperkasa | Indonesia | Consumer Discretionary | 5,389 | 1.3 |
|
|
|
| --------------- | --------------- |
|
|
|
| 63,048 | 15.5 |
|
|
|
| ========= | ========= |
| Ayala Land | Philippines | Real Estate | 9,426 | 2.3 |
| Metrobank | Philippines | Financials | 9,096 | 2.2 |
| Bloomberry | Philippines | Consumer Discretionary | 8,337 | 2.1 |
| International Container Terminal Services | Philippines | Industrials | 6,756 | 1.7 |
| DigiPlus Interactive Corp | Philippines | Consumer Discretionary | 1,393 | 0.3 |
|
|
|
| --------------- | --------------- |
|
|
|
| 35,008 | 8.6 |
|
|
|
| ========= | ========= |
| Emaar Properties | United Arab Emirates | Real Estate | 17,927 | 4.4 |
| Air Arabia | United Arab Emirates | Industrials | 6,474 | 1.6 |
| Aldar Properties | United Arab Emirates | Real Estate | 2,804 | 0.7 |
|
|
|
| --------------- | --------------- |
|
|
|
| 27,205 | 6.7 |
|
|
|
| ========= | ========= |
| OTP Bank | Hungary | Financials | 14,477 | 3.6 |
| Wizz Air Holdings | Hungary | Industrials | 7,177 | 1.7 |
| MOL Group | Hungary | Energy | 3,591 | 0.9 |
|
|
|
| --------------- | --------------- |
|
|
|
| 25,245 | 6.2 |
|
|
|
| ========= | ========= |
| CP All | Thailand | Consumer Staples | 12,673 | 3.1 |
| Advanced Info Service | Thailand | Communication Services | 9,802 | 2.4 |
| AMATA Corporation | Thailand | Real Estate | 2,105 | 0.6 |
|
|
|
| --------------- | --------------- |
|
|
|
| 24,580 | 6.1 |
|
|
|
| ========= | ========= |
| JSC Kaspi | Kazakhstan | Financials | 12,443 | 3.1 |
| Kazatomprom | Kazakhstan | Energy | 7,026 | 1.7 |
| Halyk Savings Bank | Kazakhstan | Financials | 4,769 | 1.2 |
|
|
|
| --------------- | --------------- |
|
|
|
| 24,238 | 6.0 |
|
|
|
| ========= | ========= |
| Eldorado Gold | Turkey | Materials | 10,021 | 2.5 |
| Türkiye İş Bankası | Turkey | Financials | 9,467 | 2.3 |
|
|
|
| --------------- | --------------- |
|
|
|
| 19,488 | 4.8 |
|
|
|
| ========= | ========= |
| MCB Bank | Pakistan | Financials | 8,392 | 2.1 |
| Lucky Cement | Pakistan | Materials | 8,223 | 2.0 |
|
|
|
| --------------- | --------------- |
|
|
|
| 16,615 | 4.1 |
|
|
|
| ========= | ========= |
| Equity Group | Kenya | Financials | 5,994 | 1.5 |
| Kenya Commercial Bank | Kenya | Financials | 5,067 | 1.2 |
| Safaricom | Kenya | Communication Services | 3,095 | 0.8 |
|
|
|
| --------------- | --------------- |
|
|
|
| 14,156 | 3.5 |
|
|
|
| ========= | ========= |
| PZU | Poland | Financials | 9,181 | 2.3 |
| LPP | Poland | Consumer Discretionary | 3,877 | 0.9 |
|
|
|
| --------------- | --------------- |
|
|
|
| 13,058 | 3.2 |
|
|
|
| ========= | ========= |
| BRAC Bank | Bangladesh | Financials | 7,443 | 1.8 |
| Square Pharmaceuticals | Bangladesh | Health Care | 5,567 | 1.4 |
|
|
|
| --------------- | --------------- |
|
|
|
| 13,010 | 3.2 |
|
|
|
| ========= | ========= |
| Sea Ltd | Singapore | Communication Services | 9,697 | 2.4 |
|
|
|
| --------------- | --------------- |
|
|
|
| 9,697 | 2.4 |
|
|
|
| ========= | ========= |
| Athens International Airport | Greece | Industrials | 9,428 | 2.3 |
|
|
|
| --------------- | --------------- |
|
|
|
| 9,428 | 2.3 |
|
|
|
| ========= | ========= |
| Bank of Georgia | Georgia | Financials | 8,302 | 2.0 |
|
|
|
| --------------- | --------------- |
|
|
|
| 8,302 | 2.0 |
|
|
|
| ========= | ========= |
| Moneta Money Bank | Czech Republic | Financials | 7,744 | 1.9 |
|
|
|
| --------------- | --------------- |
|
|
|
| 7,744 | 1.9 |
|
|
|
| ========= | ========= |
| EPAM Systems | Multi-International | Information Technology | 7,304 | 1.8 |
|
|
|
| --------------- | --------------- |
|
|
|
| 7,304 | 1.8 |
|
|
|
| ========= | ========= |
| Frontken Corp | Malaysia | Industrials | 7,161 | 1.8 |
|
|
|
| --------------- | --------------- |
|
|
|
| 7,161 | 1.8 |
|
|
|
| ========= | ========= |
| Cervecerias Unidas | Chile | Consumer Staples | 6,624 | 1.6 |
|
|
|
| --------------- | --------------- |
|
|
|
| 6,624 | 1.6 |
|
|
|
| ========= | ========= |
| NagaCorp | Cambodia | Consumer Discretionary | 3,770 | 0.9 |
|
|
|
| --------------- | --------------- |
|
|
|
| 3,770 | 0.9 |
|
|
|
| ========= | ========= |
| Banca Transilvania | Romania | Financials | 2,981 | 0.7 |
|
|
|
| --------------- | --------------- |
|
|
|
| 2,981 | 0.7 |
|
|
|
| ========= | ========= |
| Commercial International Bank | Egypt | Financials | 2,841 | 0.7 |
|
|
|
| --------------- | --------------- |
|
|
|
| 2,841 | 0.7 |
|
|
|
| ========= | ========= |
| Bancolombia | Colombia | Financials | 2,246 | 0.6 |
|
|
|
| --------------- | --------------- |
|
|
|
| 2,246 | 0.6 |
|
|
|
| ========= | ========= |
| Equity investments |
|
| 343,749 | 84.6 |
|
|
|
| ========= | ========= |
| BlackRock’s Institutional Cash Series plc – US Dollar Liquid Environmentally Aware Fund (Cash Fund)1 |
|
| 68,559 | 16.9 |
|
|
|
| --------------- | --------------- |
| Total equity investments (including Cash Fund) |
|
| 412,308 | 101.5 |
|
|
|
| ========= | ========= |
1 See note 1 below.
CFD portfolio by country of exposure
|
| Principal |
|
| Gross market | Gross market |
| Long positions |
|
|
|
|
|
| Saudi National Bank Corporation | Saudi Arabia | Financials |
| 16,088 | 4.0 |
| Etihad Etisalat | Saudi Arabia | Communication Services |
| 12,558 | 3.1 |
| Yanbu National Petrochemical | Saudi Arabia | Materials |
| 9,346 | 2.3 |
| Al Rajhi Bank | Saudi Arabia | Financials |
| 8,719 | 2.1 |
| Abdullah Al Othaim Markets | Saudi Arabia | Consumer Staples |
| 5,666 | 1.4 |
|
|
|
|
| --------------- | --------------- |
|
|
|
|
| 52,377 | 12.9 |
|
|
|
|
| ========= | ========= |
| FPT | Vietnam | Information Technology |
| 13,598 | 3.3 |
|
|
|
|
| --------------- | --------------- |
|
|
|
|
| 13,598 | 3.3 |
|
|
|
|
| ========= | ========= |
| Jeronimo Martins | Poland | Consumer Staples |
| 9,931 | 2.5 |
|
|
|
|
| --------------- | --------------- |
|
|
|
|
| 9,931 | 2.5 |
|
|
|
|
| ========= | ========= |
| Borouge | United Arab Emirates | Materials |
| 6,671 | 1.6 |
|
|
|
|
| --------------- | --------------- |
|
|
|
|
| 6,671 | 1.6 |
|
|
|
|
| ========= | ========= |
| Gulf International Services | Qatar | Energy |
| 5,629 | 1.4 |
|
|
|
|
| --------------- | --------------- |
|
|
|
|
| 5,629 | 1.4 |
|
|
|
|
| ========= | ========= |
| Commercial International Bank | Egypt | Financials |
| 4,387 | 1.1 |
|
|
|
|
| --------------- | --------------- |
|
|
|
|
| 4,387 | 1.1 |
|
|
|
|
| ========= | ========= |
| Wizz Air Holdings | Hungary | Industrials |
| 2,022 | 0.5 |
|
|
|
|
| --------------- | --------------- |
|
|
|
|
| 2,022 | 0.5 |
|
|
|
| ========= | ========= | ========= |
| Total long CFD positions |
|
| 2,174 | 94,615 | 23.3 |
|
|
|
| ========= | ========= | ========= |
| Total short CFD positions |
|
| (979) | (15,916) | (3.9) |
|
|
|
| --------------- | --------------- | --------------- |
| Total CFD portfolio |
|
| 1,195 | 78,699 | 19.4 |
|
|
|
| ========= | ========= | ========= |
Fair value and gross market exposure of investments as at 30 September 2024
|
|
| Gross market | Gross market exposure as | |
| 2024 | 2023 | |||
| Long equity investment positions (excluding BlackRock’s Institutional Cash Series plc – US Dollar Liquid Environmentally Aware Fund) | 343,749 | 343,749 | 84.6 | 85.2 |
| Long CFD positions | 2,174 | 94,615 | 23.3 | 29.8 |
| Short CFD positions | (979) | (15,916) | (3.9) | (3.0) |
|
| --------------- | --------------- | --------------- | --------------- |
| Subtotal of long and short investment positions | 344,944 | 422,448 | 104.0 | 112.0 |
|
| ========= | ========= | ========= | ========= |
| Cash Fund | 68,559 | 68,559 | 16.9 | 17.8 |
|
| --------------- | --------------- | --------------- | --------------- |
| Total investment and derivatives | 413,503 | 491,007 | 120.9 | 129.8 |
|
| ========= | ========= | ========= | ========= |
| Cash and cash equivalents | 2,284 | (75,220) | (18.6) | (25.9) |
| Other net current liabilities | (9,525) | (9,525) | (2.3) | (3.9) |
| Non-current liabilities | (19) | (19) | 0.0 | 0.0 |
|
| --------------- | --------------- | --------------- | --------------- |
| Net assets | 406,243 | 406,243 | 100.0 | 100.0 |
|
| ========= | ========= | ========= | ========= |
1 The nature of the Company’s portfolio and the fact the Company gains significant exposure to a number of markets through long and short CFDs means that the Company will aim to hold a level of cash (or an equivalent holding in a Cash Fund) on its balance sheet representing the difference between the notional cost of purchasing or selling the investments directly and the lower initial cost of making a collateral payment on the long or short CFD contract.
2 The Company was geared through the use of long and short CFD positions and gross and net gearing as at 30 September 2024 was 11.8% and 4.0% respectively (30 September 2023: 17.9% and 12.0% respectively). Gross and net gearing are Alternative Performance Measures, see Glossary in the Company’s Annual Report for the year ended 30 September 2024.
3 Fair value is determined as follows:
– Long equity investment positions are valued at bid prices where available, otherwise at latest market traded quoted prices.
– The exposure to securities held through long CFD positions directly in the market would have amounted to US$92,441,000 at the time of purchase, and subsequent movement in market prices have resulted in unrealised gains on the long CFD positions of US$2,174,000 resulting in the value of the total long CFD market exposure to the underlying securities increasing to US$94,615,000 as at 30 September 2024. If the long positions had been closed on 30 September 2024, this would have resulted in a gain of US$2,174,000 for the Company.
– The notional exposure of selling the securities gained via the short CFD positions would have been US$14,937,000 at the time of entering into the contract, and subsequent movement in market prices have resulted in unrealised losses on the short CFD positions of US$979,000 resulting in the value of the total short CFD market exposure of these investments increasing to US$15,916,000 at 30 September 2024. If the short positions had been closed on 30 September 2024, this would have resulted in a loss of US$979,000 for the Company.
4 The gross market exposure column for cash and cash equivalents has been adjusted to assume the Company traded direct holdings rather than exposure being gained through long and short CFDs.
5 Gross market exposure for equity investments is the same as fair value; bid prices are used where available and, if unavailable, latest market traded quoted prices are used. For both long and short CFD positions, the gross market exposure is the market value of the underlying shares to which the portfolio is exposed via the contract.
Strategic report
The Directors present the Strategic Report of the Company for the year ended 30 September 2024.
Principal activity
The Company carries on business as an investment trust and its principal activity is portfolio investment.
Investment objective
The Company’s investment objective is to achieve long-term capital growth by investing in companies domiciled or listed in or exercising the predominant part of their economic activity in, less developed countries. These countries (the “Frontiers Universe”) are any country which is neither part of the MSCI World Index of developed markets, nor one of the eight largest countries by market capitalisation in the MSCI Emerging Markets Index: being Brazil, China, India, South Korea, Mexico, Russia, South Africa and Taiwan (the “Selected Countries”).
Strategy, business model and investment policy
Strategy
To achieve its objective, the Company invests globally in the securities of companies domiciled or listed in or exercising the predominant part of their economic activity in, the Frontiers Universe.
Business model
The Company’s business model follows that of an externally managed investment trust; therefore the Company does not have any employees and outsources its activities to third party service providers, including BlackRock Fund Managers Ltd (BlackRock or BFM) (‘the Manager’) which is the principal service provider.
The management of the investment portfolio and the administration of the Company have been contractually delegated to the Manager. The Manager has delegated certain investment management and other ancillary services to BlackRock Investment Management (UK) Limited (BIM (UK)) (‘the Investment Manager’). The contractual arrangements with, and assessment of, the Manager are summarised in the Company’s Annual Report for the year ended 30 September 2024. The Investment Manager, operating under guidelines determined by the Board, has direct responsibility for the decisions relating to the day-to-day running of the Company and is accountable to the Board for the investment, financial and operating performance of the Company. Other service providers include the Depositary and the Fund Accountant, The Bank of New York Mellon (International) Limited (BNY), and the Registrar, Computershare Investor Services PLC (Computershare). Details of the contractual terms with third party service providers are set out in the Directors’ Report.
Investment policy
The Company will seek to maximise total return and will invest globally in the securities of companies domiciled or listed in or exercising the predominant part of their economic activity in, the Frontiers Universe. Performance is measured against the Company’s Benchmark Index, which is a composite of the MSCI Emerging Markets Index ex Selected Countries + MSCI Frontier Markets Index (net total return, USD). The Investment Manager is not constrained by the geographical weightings of the Benchmark Index and the Company’s portfolio may frequently be overweight or underweight any particular country relative to the Benchmark Index. The Company will exit any investment as soon as reasonably practicable following the relevant company ceasing to be domiciled or listed in or exercising the predominant part of its economic activity in, the Frontiers Universe.
In order to achieve the Company’s investment objective, the Investment Manager selects investments through a process of fundamental and geopolitical analysis, seeking long-term appreciation from mispriced value or growth. The Investment Manager employs both a top-down and bottom-up approach to investing. It is expected that the Company will have exposure to between 35 to 65 holdings.
Where possible, investment will generally be made directly in the stock markets of the Frontiers Universe. Where the Investment Manager determines it appropriate, investment may be made through collective investment schemes, although such investments are not likely to be significant. Investment in other closed-ended investment funds admitted to the Official List will not exceed more than 10%, in aggregate, of the value of the Gross Assets (calculated at the time of any relevant investment). It is intended that the Company will generally be invested in equity investments; however, the Investment Manager has the ability to invest in equity-related investments, such as derivatives or convertibles, and, to a lesser extent, in bonds or other fixed-income securities, including high risk debt securities. These securities may be below investment grade.
Due to national and/or international regulation, excessive operational risk, prohibitive costs and/or the time period involved in establishing trading and custody accounts in certain countries in the Frontiers Universe, the Company may be unable to invest (whether directly or through nominees) in companies in certain countries in the Frontiers Universe or, in the opinion of the Company and/or the Investment Manager, it may not be advisable to do so. In such circumstances, or in countries where acceptable custodial and other arrangements are not in place to safeguard the Company’s investments, the Company intends to gain economic exposure to companies in such countries by investing indirectly through derivatives. Derivatives are financial instruments linked to the performance of another asset or security, such as promissory notes, contracts for difference, futures or traded options. Save as provided below, there is no restriction on the Company investing in derivatives in such circumstances or for efficient portfolio management purposes.
The Company may be geared through borrowings and/or by entering into derivative transactions (taking both long and short positions) that have the effect of gearing the Company’s portfolio to enhance performance. The Company may also use borrowings for the settlement of transactions, to facilitate share repurchases (where applicable) and to meet on-going expenses.
The respective limits on gearing (whether through the use of derivatives, borrowings or a combination of both) are set out below:
- Maximum gearing through the use of derivatives or borrowings to gain exposure to long positions in securities: 140% of net assets
- Maximum exposure to short positions (for shorting purposes the Company may use indices or individual stocks): 10% of net assets
- Maximum gross exposure (total long exposure plus total short exposure): 150% of net assets
- Maximum net exposure (total long exposure minus total short exposure): 130% of net assets
In normal circumstances, the Company will typically have net exposure of between 95% and 120% of net assets.
When investing via derivatives, the Company will seek to mitigate and/or spread its counterparty risk exposure by collateralisation and/or contracting with a potential range of counterparty banks, as appropriate, each of which shall, at the time of entering into such derivatives, have a Standard & Poor’s credit rating of at least A- on its long-term senior unsecured debt.
The Company may invest up to 5% of its Gross Assets (at the time of such investment) in unquoted securities. The Company will invest so as not to hold more than 15% of its Gross Assets in any one stock or derivative position at the time of investment (excluding cash management activities).
No material change will be made to the investment policy without the approval of shareholders by ordinary resolution.
A detailed analysis of the Company’s portfolio has been provided above.
Investment approach and process
Portfolio construction is a continuous process, with the Investment Manager analysing constantly the impact of new ideas and information on the portfolio as a whole. The approach is flexible, varying through market and economic cycles to create a portfolio appropriate to the focused and unconstrained strategy of the Company. The macro environment is factored into all portfolio decisions. In general, macro analysis is a more dominant factor in investment decision-making when the outlook is negative. The macro process is comprised of three parts: political assessment, macroeconomic analysis and appraisal of the valuation of a country’s market, which can only take place with thorough analysis of stock specific opportunities.
The Investment Manager’s research team generates ideas from a diverse range of sources. When permitted, these include frequent travel to the markets in which the Company invests and regular conversations with contacts that allow the Frontiers team to assess the entire eco system around a company, namely competitors, suppliers, financiers, customers and regulators. The team leverages the internal research network, sharing information between BlackRock’s investment teams using a proprietary research application and database and develops insights from macroeconomic analysis. The Board believes that BlackRock’s research platform is a significant competitive advantage, both in terms of information specific to emerging and frontier market equities and through its global insights across asset classes. Access to companies is extremely good given BlackRock’s market presence, which makes it possible to develop a detailed knowledge of a company and its management.
The research process focuses on cash flow and future earnings growth, as the investment team believes that this is ultimately the driver of share prices over time. The process is designed with the aim of identifying companies that can translate top line revenue growth to free cash flow and investing in these companies when the analysis suggests that the cash flow stream is undervalued. Financial models are developed focusing on company financials, particularly cash flow statements, rather than relying on third party research.
Performance
Details of the Company’s performance for the year are given in the Chair’s Statement above. The Investment Manager’s Report above includes a review of the main developments during the period, together with information on investment activity within the Company’s portfolio.
Results and dividends
The results for the Company are set out in the Statement of Comprehensive Income below. The total profit for the year, after taxation, was US$58,548,000 (2023: US$74,856,000) of which the revenue return amounted to US$18,884,000 (2023: US$15,872,000) and the capital profit amounted to US$39,664,000 (2023: US$58,984,000).
The Directors are recommending the payment of a final dividend of 6.00 cents per ordinary share in respect of the year ended 30 September 2024 (2023: final dividend of 4.90 cents) as set out in the Chair’s Statement above.
Future prospects
The Board’s main focus is on the achievement of capital growth and the future of the Company is dependent upon the success of the investment strategy. The outlook for the Company is discussed in both the Chair’s Statement and in the Investment Manager’s Report above.
Social, community and human rights issues
As an investment trust, the Company has no direct social or community responsibilities or impact on the environment and the Company has not adopted an ESG investment strategy. However, the Company believes that it is in shareholders’ interests to consider environmental, social and governance factors and human rights issues when selecting and retaining investments. Details of the Company’s approach to ESG integration and socially responsible investment is set out in the Company’s Annual Report for the year ended 30 September 2024.
Modern slavery
As an investment vehicle the Company does not provide goods or services in the normal course of business and does not have customers. Accordingly, the Directors consider that the Company is not required to make any slavery or human trafficking statement under the Modern Slavery Act 2015. In any event, the Board considers the Company’s supply chain, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.
Directors, gender representation and employees
The Directors of the Company on 30 September 2024 are set out in the Directors’ biographies section in the Company’s Annual Report for the year ended 30 September 2024. As at 4 December 2024, the Board consisted of two men and three women constituting 60% female Board representation. The Company does not have any employees.
Key performance indicators
The Directors consider a number of performance measures to assess the Company’s success in achieving its objectives. The key performance indicators (KPIs) used to measure the progress and performance of the Company over time and which are comparable to those reported by other investment trusts are set out below.
Performance
At each meeting the Board reviews the performance of the portfolio as well as the net asset value and share price for the Company and compares this to the return of the Company’s benchmark. The Board considers this to be an important key performance indicator and has determined that it should also be used to calculate whether a performance fee is payable to BlackRock. The Company’s absolute and relative performance is set out in the performance record table the Company’s Annual Report for the year ended 30 September 2024.
The Board regularly reviews a number of indices and ratios to understand the impact on the Company’s relative performance of the various components such as asset allocation and stock selection. The Board also reviews the performance of the Company against a peer group of frontier market focused open and closed-ended funds.
Share rating and discount/premium
The Directors recognise the importance to investors that the Company’s share price should not trade at a significant discount or premium to NAV. Accordingly, the Directors monitor the share rating closely and will consider share repurchases in the market if the discount widens significantly, or the issue of shares to the market to meet demand to the extent that the Company’s shares are trading at a premium. In addition, in accordance with the Directors’ commitment at launch the Company will formulate and submit to shareholders proposals to provide them with an opportunity at each five year anniversary since launch to realise the value of their ordinary shares at the prevailing NAV per share less applicable costs. Such an opportunity took place in the year ended 30 September 2021. The next opportunity will take place in early 2026.
For the year under review the Company’s shares traded at an average discount to the cum-income NAV of 8.5% and were trading at a discount of 9.1% on a cum-income basis at 2 December 2024. The Directors have the authority to buy back up to 14.99% of the Company’s issued share capital (excluding treasury shares). The Directors sought and received shareholder authority at the last AGM to issue up to 10% of the Company’s issued share capital (via the issue of new shares or sale of shares from treasury) on a non pre-emptive basis. Further information can be found in the Directors’ Report in the Company’s Annual Report for the year ended 30 September 2024.
Ongoing charges
The ongoing charges reflect those expenses which are likely to recur in the foreseeable future, whether charged to capital or revenue, and which relate to the operation of the investment company, excluding the costs of acquisition or disposal of investments, financing charges and gains or losses arising on investments and performance fees. The ongoing charges are based on actual costs incurred in the year as being the best estimate of future costs. The Board reviews the ongoing charges and monitors the expenses incurred by the Company.
The table below sets out the key KPIs for the Company (see Glossary in the Company’s Annual Report for the year ended 30 September 2024).
|
| Year ended | Year ended | ||
|
| £% | US$% | £% | US$% |
| Net asset value total return2 | +6.0 | +16.5 | +14.3 | +25.1 |
| Share price total return3 | +5.4 | +15.8 | +17.7 | +28.8 |
| Benchmark Index return4 | +5.3 | +15.7 | -3.9 | +5.0 |
| Discount to cum income NAV |
| 9.4 |
| 8.5 |
| Ongoing charges5 |
| 1.41 |
| 1.38 |
| Ongoing charges including performance fees6 |
| 2.33 |
| 3.78 |
|
| ========= | ========= | ========= | ========= |
1 Based on an exchange rate of US$1.3414 to £1 at 30 September 2024 and US$1.2206 to £1 at 30 September 2023.
2 Calculated with dividends reinvested.
3 Calculated on a mid to mid basis with dividends reinvested.
4 The Benchmark Index is a composite of the MSCI Emerging Markets Index ex Selected Countries + MSCI Frontier Markets Index. Benchmark Index return calculates the reinvestment of dividends net of withholding taxes.
5 Ongoing charges represent the management fee and all other operating expenses, excluding performance fees, finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation, prior year expenses written back and certain non-recurring items, as a % of average daily net assets.
6 Ongoing charges represent the management fee and all other operating expenses, including performance fees, but excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation, prior year expenses written back and certain non-recurring items, as a % of average daily net assets.
Principal risks
As required by the 2018 UK Code of Corporate Governance, the Board has in place a robust, ongoing process to identify, assess and monitor the principal and emerging risks of the Company, including those that they consider would threaten its business model, future performance, solvency or liquidity. Emerging risks are considered by the Board as they come into view and are incorporated into the Company’s risk register where applicable. Additionally, the Manager considers emerging risks in numerous forums and the Risk and Quantitative Analysis team produces an annual risk survey. Any material risks of relevance to the Company identified through the annual risk survey will be communicated to the Board.
A core element of this is the Company’s risk register, which identifies the risks facing the Company and assesses the likelihood and potential impact of each risk, and the quality of the controls operating to mitigate the risk. A residual risk rating is then calculated for each risk based on the outcome of this assessment. This approach allows the effect of any mitigating procedures to be reflected in the final assessment.
The risk register, its method of preparation and the operation of the key controls in BlackRock’s and other third party service providers’ systems of internal control are reviewed on a regular basis by the Company’s Audit and Management Engagement Committee. In order to gain a more comprehensive understanding of BlackRock’s and other third party service providers’ risk management processes and how these apply to the Company’s business, the Audit and Management Engagement Committee periodically receives presentations from BlackRock’s Internal Audit and Risk & Quantitative Analysis teams, and reviews Service Organisation Control (SOC 1) reports from BlackRock and the Company’s Custodian and Fund Accountant, The Bank of New York Mellon (International) Limited (BNY).
The current risk register includes a range of risks spread between performance risk, income/dividend risk, legal and regulatory risk, counterparty risk, operational risk, market risk, political risk and financial risk.
The principal risks and uncertainties faced by the Company during the year, together with the potential effects, controls and mitigating factors, are set out below.
Investment Performance Risk
Principal risk
The Board is responsible for:
- setting the investment policy to fulfil the Company’s objectives; and
- monitoring the performance of the Company’s Investment Manager and the strategy adopted.
An inappropriate policy or strategy may lead to:
- poor performance compared to the Company’s benchmark peer group or shareholder expectations;
- a widening discount to NAV;
- a reduction or permanent loss of capital; and
- dissatisfied shareholders and reputational damage.
The Board is also cognisant of the long-term risk to performance from inadequate attention to environmental, social and governance (ESG) issues and in particular the impact of climate change.
Mitigation/Control
To manage this risk the Board:
- regularly reviews the Company’s investment mandate and long-term strategy;
- has set, and regularly reviews, the investment guidelines and has put in place appropriate limits on levels of gearing and the use of derivatives;
- receives from the Investment Manager a regular explanation of stock selection decisions, portfolio gearing and any changes in gearing and the rationale for the composition of the investment portfolio;
- receives from the Investment Manager regular reporting on the portfolio’s exposure through derivatives, including the extent to which the portfolio is geared in this manner and the value of any short positions;
- monitors the maintenance of an adequate spread of investments in order to minimise the risks associated with particular countries or factors specific to particular sectors, based on the diversification requirements inherent in the Company’s investment policy;
- regularly reviews detailed performance attribution analysis; and
- monitors ESG factors in the portfolio and engagement with investee companies on ESG issues.
Income/Dividend Risk
Principal risk
The quantum of dividends and future dividend growth will depend on the income generated by the Company’s underlying portfolio. In addition, any change in the tax treatment of the dividends or interest received by the Company (including as a result of withholding taxes or exchange controls imposed by jurisdictions in which the Company invests) may reduce the level of dividends received by shareholders.
Mitigation/Control
Although the Company does not have a policy of actively seeking income, the Board monitors this risk through the receipt of detailed income forecasts and considers the level of income at each meeting. The Company also has a revenue reserve and powers to pay dividends from capital which can be used to support the Company’s dividend if required.
Legal and Regulatory Risk
Principal risk
The Company has been approved by HM Revenue & Customs as an investment trust, subject to continuing to meet the relevant eligibility conditions, and operates as an investment trust in accordance with Chapter 4 of Part 24 of the Corporation Tax Act 2010. As such, the Company is exempt from capital gains tax on the profits realised from the sale of its investments.
Any breach of the relevant eligibility conditions could lead to the Company losing its investment trust status and being subject to corporation tax on capital gains realised within the Company’s portfolio.
In such event the investment returns of the Company may be adversely affected. Any serious breach could result in the Company and/or the Directors being fined or the subject of criminal proceedings or the suspension of the Company’s shares which would in turn lead to a breach of the Corporation Tax Act 2010. Amongst other relevant laws and regulations, the Company is required to comply with the provisions of the Companies Act 2006, the Alternative Investment Fund Managers’ Directive, the Market Abuse Act, the UK Listing Rules and the Disclosure Guidance & Transparency Rules.
Mitigation/Control
The Investment Manager monitors investment movements, the level of forecast income and expenditure and the quantum of proposed dividends, if any, to ensure that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached, and the results are reported to the Board at each meeting.
Following authorisation under the Alternative Investment Fund Managers’ Directive (AIFMD), the Company and its appointed Alternative Investment Fund Manager (AIFM) are subject to the risks that the requirements of this Directive are not correctly complied with. The Board and the AIFM also monitor changes in government policy and legislation which may have an impact on the Company.
Compliance with the accounting standards applicable to quoted companies and those applicable to investment trusts are also regularly monitored to ensure compliance.
The Company Secretary and the Company’s professional advisers monitor developments in relevant laws and regulations and provide regular reports to the Board in respect of the Company’s compliance.
Counterparty Risk
Principal risk
The Company’s investment policy permits the use of both exchange-traded and over-the-counter derivatives (including contracts for difference). Counterparty risk represents potential loss that the Company could incur if a counterparty is unable (or unwilling) to honour its commitments.
The Company may also gain exposure to the Frontiers Universe by investing indirectly through Participatory Notes (P-Notes) which presents additional risk to the Company as P-Notes are uncollateralised resulting in the Company being subject to full counterparty risk via the P-Note issuer. P-Notes also present liquidity issues as the Company, being a captive client of a P-Note issuer, may only be able to realise its investment through the P-Note issuer and this may have a negative impact on the liquidity of the P-Notes which does not correlate to the liquidity of the underlying security.
Mitigation/Control
Due diligence is undertaken before contracts are entered into and exposures are diversified across a number of counterparties. The Board reviews the controls put in place by the Investment Manager to monitor and to minimise counterparty exposure, which include intra-day monitoring of exposures to ensure that these are within set limits.
Operational Risk
Principal risk
In common with most other investment trust companies, the Company has no employees. The Company therefore relies upon the services provided by third parties and is dependent on the control systems of BlackRock (the Investment Manager and AIFM), and of The Bank of New York Mellon (International) Limited (the Custodian, Depositary and Fund Accountant), which ensures safe custody of the Company’s assets and maintains the Company’s accounting records. The Company’s share register is maintained by the Registrar, Computershare.
Failure by any service provider to carry out its obligations to the Company could have a material adverse effect on the Company’s performance. Disruption to the accounting, payment systems or custody records, as a result of a cyberattack or otherwise, could impact the monitoring and reporting of the Company’s financial position.
The security of the Company’s assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements, depend on the effective operation of these systems.
Mitigation/Control
The Board reviews the overall performance of the Manager, Investment Manager and all other third-party service providers and compliance with the investment management agreement on a regular basis.
The Fund Accountant’s and the Manager’s internal control processes are regularly tested and monitored throughout the year and are evidenced through their Service Organisation Control (SOC 1) reports, which are subject to review by an Independent Service Assurance Auditor. The SOC 1 reports provide assurance in respect of the effective operation of internal controls.
The Company’s assets are subject to a strict liability regime and in the event of a loss of financial assets held in custody, the Depositary must return assets of an identical type or the corresponding amount, unless able to demonstrate that the loss was a result of an event beyond its reasonable control.
The Board considers succession arrangements for key employees of the Manager and the Board also considers the business continuity arrangements of the Company’s key service providers on an ongoing basis and reviews these as part of its review of the Company’s risk register.
The Board also receives regular reports from BlackRock’s internal audit function.
Political Risk
Principal risk
Investments in the Frontiers Universe may include a higher element of risk compared to more developed markets due to greater political instability. Political and diplomatic events in the Frontiers Universe where the Company invests (for example, governmental instability, corruption, adverse changes in legislation or other diplomatic developments such as the outbreak of war or imposition of sanctions) could substantially and adversely affect the economies of such countries or the value of the Company’s investments in those countries.
Mitigation/Control
The Investment Manager mitigates this risk by applying stringent controls over where investments are made and through close monitoring of political risks. The Investment Manager’s approach to filtering the investment universe takes account of the political background to regions and is backed up by rigorous stock specific research and risk analysis, individually and collectively, in constructing the portfolio. The management team has a wide network of business and political contacts which provides economic insights with public and private bodies. This enables the Investment Manager to assess potential investments in an informed and disciplined way, as well as being able to conduct regular monitoring of investments once made. However, given the nature of political risk, all investments will be exposed to a degree of risk and the Investment Manager will ensure that the portfolio remains diversified across countries to mitigate the risk.
Financial Risk
Principal risk
The Company’s investment activities expose it to a variety of financial risks which include foreign currency risk, liquidity risk, currency risk and interest rate risk.
Mitigation/Control
Details of these risks are disclosed in note 17 to the financial statements in the Company’s Annual Report for the year ended 30 September 2024, together with a summary of the policies for managing these risks.
Market Risk
Principal risk
The Company is exposed to currency, market and political risk due to the location of the operations of the businesses in which it may invest.
Market risk arises from volatility in the prices of the Company’s investments. It represents the potential loss the Company might suffer through realising investments in the face of negative market movements. The securities markets of the Frontiers Universe are not as large as the more established securities markets and have substantially lower trading volume, which may result in a lack of liquidity and higher price volatility.
Corruption also remains a significant issue across the Frontiers Universe and the effects of corruption could have a material adverse effect on the Company’s performance. Accounting, auditing and financial reporting standards and practices and disclosure requirements applicable to many companies in developing countries may be less rigorous than in developed markets. As a result, there may be less information available publicly to investors in these securities, and such information as is available is often less reliable. This risk can be partially mitigated by the fact that our portfolio managers only invest in companies that produce fully audited accounts.
Companies operating in the sectors in which the Company invests may be impacted by new legislation governing climate change and environmental issues, which may have a negative impact on their valuation and share price.
Mitigation/Control
Market risk represents the risks of investment in a particular market, country or geographic region. Therefore, this is largely outside of the scope of the Board’s control. However, the Board carefully considers asset allocation, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by the Investment Manager. Market risk is also mitigated through portfolio diversification across countries and regions. The Board monitors the implementation and results of the investment process with the Investment Manager regularly.
The Investment Manager regularly reports to the Board on relative market risks associated with investment in such regions. Further information is provided under ‘Political Risk’.
The Board recognises the benefits of a closed-end fund structure in extremely volatile markets such as those affected by the war in Ukraine, the conflict in the Middle East and the cost of living crisis. Unlike open-ended counterparts, closed-end funds are not obliged to sell-down portfolio holdings at low valuations to meet liquidity requirements for redemptions. During times of elevated volatility and market stress, the ability of a closed-end fund structure to remain invested for the long term enables the Investment Manager to adhere to disciplined fundamental analysis from a bottom-up perspective and be ready to respond to dislocations in the market as opportunities present themselves.
The Portfolio Managers seek to understand the ESG risks and opportunities facing companies and industries in the portfolio. The Company does not exclude investment in stocks based on ESG criteria, but the Portfolio Managers consider ESG information when conducting research and due diligence on new investments and again when monitoring investments in the portfolio.
Viability statement
In accordance with the provisions of the UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the twelve months referred to by the ‘Going Concern’ guidelines. The Board is cognisant of the uncertainty surrounding the potential duration of the conflicts in both Ukraine and the Middle East, their impact on the global economy, and the prospects for many of the Company’s portfolio holdings. The Board expects the Company to continue to meet its liabilities as they fall due for the foreseeable future and has therefore conducted this review for a period of five years. Five years is considered by the Board to be a reasonable time horizon over which the performance of the Company can be assessed. The Board also notes that this aligns with the five-yearly assessment period adopted when the Company was launched (on the basis that this was an appropriate time frame for shareholders to judge performance and have the opportunity to tender their shares at the applicable NAV per ordinary share less relevant costs).
The Board conducted this review for the period up to the AGM in 2030.
In determining this period, the Board took into account the Company’s investment objective to achieve long-term capital growth and the Company’s projected income and expenditure. The Directors are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and is financially sound.
When the Company was launched in late 2010, the Board made a commitment that before the Company’s fifth AGM and at five yearly intervals thereafter, it would formulate and submit to shareholders proposals to provide shareholders with an opportunity to realise the value of their ordinary shares at the applicable NAV per ordinary share less applicable costs. The Board put proposals to shareholders in 2021. The Company received elections to tender representing 21.5% of the Company, with the vast majority of shareholders choosing to retain their investment. The Board believes this is indicative of the ongoing attractiveness of the Company’s investment strategy and offering. The next such opportunity will occur in early 2026.
In making the longer-term viability assessment the Board has considered the following factors:
- the Company’s principal risks as set out above;
- the level of ongoing demand for the Company’s ordinary shares;
- the impact of a significant fall in Frontier equity markets on the value of the Company’s investment portfolio;
- the ongoing relevance of the Company’s investment objective, business model and investment policy in the current environment;
- the operational resilience of the Company and its key service providers and their ability to continue to provide a good level of service for the foreseeable future; and
- the effectiveness of business continuity plans in place for the Company and key service providers.
The Board has also considered a number of financial metrics, including:
- the level of current and historic ongoing charges incurred by the Company;
- the Company’s borrowings and its ability to meet its liabilities as they fall due;
- the premium or discount to NAV;
- the level of income generated by the Company;
- future income forecasts; and
- the liquidity of the Company’s portfolio.
The Company is an investment company with a relatively liquid equity portfolio (as at 30 September 2024, 92.79% of the equity portfolio was capable of being realised in less than 20 days in normal market conditions) and largely fixed overheads (excluding performance fees) which comprise a very small percentage of net assets (1.41%). In addition, any performance fees are capped at 1% of gross assets in years where the NAV per share has fallen or 2.5% of gross assets in years where the NAV per share has increased. Therefore, the Board has concluded that even in exceptionally stressed operating conditions, the Company would comfortably be able to meet its ongoing operating costs as they fall due.
However, investment companies may face other challenges, such as regulatory changes and the tax treatment of investment trusts, or a significant decrease in size due to substantial share buy-back activity or market falls, which may result in the Company no longer being of sufficient market capitalisation to represent a viable investment proposition or no longer being able to continue in operation.
The Board has determined that the factors considered are applicable to the period up to the AGM in 2030 and beyond.
Based on the results of their analysis, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment.
The Board’s assessment of the Company’s ability to operate in the foreseeable future is included in the Going Concern Statement which can be found in the Company’s Annual Report for the year ended 30 September 2024 in the Directors’ Report.
Section 172 Statement: Promoting the success of BlackRock Frontiers Investment Trust Plc
The Companies (Miscellaneous Reporting) Regulations 2018 require directors to explain more fully how they have discharged their duties under Section 172(1) of the Companies Act 2006 in promoting the success of their companies for the benefit of members as a whole. This enhanced disclosure covers how the Board has engaged with and understands the views of stakeholders and how stakeholders’ needs have been taken into account, the outcome of this engagement and the impact that it has had on the Board’s decisions.
As the Company is an externally managed investment company and does not have any employees or customers, the Board considers the main stakeholders in the Company to be the shareholders, key service providers (being the Manager and Investment Manager, the Custodian, Depositary, Registrar and Broker) and investee companies.
A summary of the principal areas of engagement undertaken by the Board with its key stakeholders in the year under review and how Directors have acted upon this to promote the long-term success of the Company is set out in the tables below.
Stakeholders
Shareholders
Shareholder support and engagement are critical to the existence of the Company and the successful delivery of its long-term strategy. The Board is focused on fostering good relationships with shareholders and on understanding the views of shareholders in order to incorporate them into the Company’s strategy and objectives.
Manager and Investment Manager
The Board’s main working relationship is with the Manager, who is responsible for the Company’s portfolio management and risk management, as well as ancillary functions such as administration, secretarial, accounting and marketing services. The Manager has sub-delegated portfolio management to the Investment Manager. Successful management of shareholders’ assets by the Investment Manager is critical for the Company to successfully deliver its investment strategy and meet its objective. The Company is also reliant on the Manager as AIFM to provide support in meeting relevant regulatory obligations under the AIFMD and other relevant legislation.
Other key service providers
In order for the Company to function as an investment trust with a listing on the main market of London Stock Exchange, the Board relies on a range of advisors for support in meeting relevant obligations and safeguarding the Company’s assets. For this reason, the Board considers the Company’s Custodian, Depositary, Registrar and Broker to be stakeholders. The Board maintains regular contact with its key external providers and receives regular reporting from them through the Board and committee meetings, as well as outside of the regular meeting cycle.
Investee companies
Portfolio holdings are ultimately shareholders’ assets, and the Board recognises the importance of good stewardship and communication with investee companies in meeting the Company’s investment objective and strategy. The Board monitors the Manager’s stewardship activities and receives regular feedback from the Manager in respect of meetings with the management of portfolio companies.
A summary of the key areas of engagement undertaken by the Board with its key stakeholders in the year under review and how Directors have acted upon this to promote the long-term success of the Company is set out in the table below.
Area of Engagement
Responsible investing
Issue
The Board is committed to promoting the role and success of the Company in delivering on its investment mandate to shareholders over the long term. However, the Board recognises that securities within the Company’s investment remit may involve additional risk due to the political volatility and environmental, social and governance concerns facing many of the countries in the Company’s investment universe. While the Company does not have a sustainable investment objective or exclude investments based only on ESG criteria, these ethical and sustainability issues should be a consideration of our Manager’s research. More than ever, consideration of sustainable investment is a key part of the investment process and should be factored in when making investment decisions. The Board also has responsibility to shareholders to ensure that the Company’s portfolio of assets is invested in line with the stated investment objective and in a way that ensures an appropriate balance between spread of risk and portfolio returns.
Engagement
The Board believes that responsible investment and sustainability are important to the longer-term delivery of value and has worked very closely with the Manager throughout the year to regularly review the Company’s performance and investment strategy and to understand how ESG considerations are integrated into the investment process.
The Manager’s approach to the consideration of ESG factors in respect of the Company’s portfolio, as well as its engagement with investee companies to encourage the adoption of sustainable business practices which support long-term value creation, are kept under review by the Board. The Manager reports to the Board in respect of its consideration of ESG factors and how these are integrated into the investment process; a summary of BlackRock’s approach to ESG and sustainability is set out in the Company’s Annual Report for the year ended 30 September 2024. The Investment Manager’s engagement and voting policy is detailed in the Company’s Annual Report for the year ended 30 September 2024 and on the BlackRock website.
Impact
The Board and the Manager believe there is a positive long-term correlation between strong ESG practices and investment performance. Details regarding the Company’s NAV and share price performance can be found in the Chair’s Statement above. The portfolio activities undertaken by the Manager can be found in the Investment Manager’s Report above.
Share Capital Management
Issue
The Board believes that the Company’s unique investment offering, strong performance and attractive dividend yield enhances demand for the Company’s shares, which should help to maintain the Company’s share price at as close to the underlying NAV as possible. However, wider market issues such as the level of interest rates and investor sentiment may lead to divergence.
Engagement
The Manager reports total return performance statistics to the Board on a regular basis, along with the portfolio yield and the impact of dividends paid on brought forward distributable reserves.
The Board reviews the Company’s discount/premium to NAV on a regular basis and holds frequent discussions with the Manager and the Company’s broker regarding the discount/premium level and the factors effecting it.
The Board seeks shareholder authority each year to buy back up to 14.99% of the Company’s issued share capital for cancellation or to be held in treasury for potential re-issue. Buying back the Company’s shares can, in certain circumstances, help to narrow the discount and/or reduce the volatility in the share rating.
The Company has also put in place a five yearly mechanism which provides shareholders with a periodic opportunity to tender their shares at NAV less costs. This last occurred in March 2021, with the next opportunity to take place in early 2026.
Impact
The average discount for the year to 30 September 2024 was 9.4%. During the year the Company’s share price traded at a maximum discount of 11.4% and a minimum discount of 5.3%. This range compares favourably with the peer group and wider investment company sector.
Service levels of third party providers
Issue
The Board acknowledges the importance of ensuring that the Company’s principal suppliers are providing a suitable level of service, including the Manager in respect of investment performance; the Custodian and Depositary in respect of their duties towards safeguarding the Company’s assets; the Registrar in its maintenance of the Company’s share register and dealing with investor queries and the Company’s Brokers in respect of the provision of advice and acting as a market maker for the Company’s shares.
Engagement
The Manager reports to the Board on the Company’s performance on a regular basis. The Board carries out a robust annual evaluation of the Manager’s performance, their commitment and available resources.
The Board performs an annual review of the service levels of all third party service providers and concludes on their suitability to continue in their role.
The Board receives regular updates from the AIFM, Depositary, Registrar and Brokers on an ongoing basis.
The Board works closely with the Manager to gain comfort that relevant business continuity plans are operating effectively for all of the Company’s service providers.
Impact
All performance evaluations were performed on a timely basis and the Board concluded that all third-party service providers, including the Manager, Custodian, Depositary and Fund Accountant were operating effectively and providing a good level of service.
The Board has received updates in respect of business continuity planning from the Company’s Manager, Custodian, Depositary, Fund Accountant, Broker, Registrar and printer, and is confident that arrangements are in place to ensure that a good level of service will continue to be provided.
Board composition
Issue
The Board is committed to ensuring that its own composition brings an appropriate balance of knowledge, experience and skills, and that it is compliant with best corporate governance practice under the UK Code, including guidance on tenure and the composition of the Board’s committees.
Engagement
As it does each year, the Board, discharging the duties of a Nomination Committee, considers the composition of the Board to ensure that it is suitably aligned with the activities and needs of the Company. Following this review, and in accordance with corporate governance best practice, the Board appointed Katrina Hart as Chair and Elisabeth Airey as the Senior Independent Director from the conclusion of the AGM in 2024. Over the year ended 30 September 2024, a comprehensive search and selection process was conducted to identify a new non-executive Director. Following this thorough process, Mr Hatem Dowidar was appointed on 7 February 2024.
The Board will continue to keep the composition of the Board under regular review. If it is determined that a new appointment to the Board is required, it will agree the selection criteria, which will take into account the need to maintain a suitable balance of skills, knowledge, independence and diversity.
All Directors are subject to a formal evaluation process on an annual basis (more details and the conclusions in respect of the 2024 evaluation process are given in the Company’s Annual Report for the year ended 30 September 2024). All eligible Directors stand for re-election by shareholders annually. Shareholders may attend the AGM and raise any queries in respect of Board composition or individual Directors in person or may contact the Company Secretary or the Chair using the details provided in the Company’s Annual Report for the year ended 30 September 2024 if they wish to raise any issues.
Impact
The Directors are not aware of any issues that have been raised directly by shareholders in respect of Board composition in 2024. Details for the proxy voting results in favour and against individual Directors’ re-election at the 2023 AGM are given on the Company’s website at www.blackrock.com/uk/brfi.
Shareholders
Issue
Shareholder support and engagement are critical to the continued existence of the Company and the successful delivery of its long-term strategy.
Engagement
The Board is committed to maintaining open channels of communication and engaging with shareholders. The Company welcomes and encourages attendance and participation from shareholders at its Annual General Meetings. Shareholders therefore have the opportunity to meet the Directors and Investment Manager and to address questions to them directly.
The Annual Report and Half Yearly Financial Report are available on the BlackRock website and are also circulated to shareholders either in printed copy or via electronic communications. In addition, regular updates on performance, monthly factsheets, the daily NAV and other information are published on the website at www.blackrock.com/uk/brfi.
The Board works closely with the Manager to develop the Company’s marketing strategy, with the aim of ensuring effective communication with shareholders in respect of the investment mandate and objective. Unlike trading companies, one-to-one shareholder meetings usually take the form of a meeting with the Investment Manager as opposed to members of the Board. As well as attending regular investor meetings the Investment Manager holds regular discussions with wealth management desks and offices to build on the case for, and understanding of, long-term investment opportunities in frontier markets.
The Manager coordinates public relations activity, including meetings between the Investment Manager and relevant industry publications to set out their vision for the portfolio strategy and outlook for the region.
The Manager releases monthly portfolio updates to the market to ensure that investors are kept up to date in respect of performance and other portfolio developments and maintains a website on behalf of the Company that contains relevant information in respect of the Company’s investment mandate and objective.
If shareholders wish to raise issues or concerns with the Board, they are welcome to do so at any time. The Chair is available to meet directly with shareholders periodically to understand their views on governance and the Company’s performance where they wish to do so. She may be contacted via the Company Secretary whose details are given in the Company’s Annual Report for the year ended 30 September 2024.
Impact
The Board values any feedback and questions from shareholders ahead of and during Annual General Meetings in order to gain an understanding of their views and will take action when and as appropriate. Feedback and questions will also help the Company evolve its reporting, aiming to make it more transparent and understandable.
Feedback from all substantive meetings between the Investment Manager and shareholders is shared with the Board. The Directors also receive updates from the Company’s Broker and the Investment Manager on any feedback from shareholders, as well as share trading activity and share price performance.
The Company’s approach to ESG
Environmental, social and governance (ESG) issues can present both opportunities and risks to long-term investment performance. Whilst the Company does not exclude investment in stocks purely on ESG criteria, material ESG analytics are integrated into the investment process when weighing up the risks and rewards of investment decisions. The Board believes that communication and engagement with portfolio companies is important and can lead to better outcomes for shareholders and the environment than merely excluding investment in certain areas.
More information on BlackRock’s global approach to ESG integration, as well as activity specific to the BlackRock Frontiers Investment Trust plc portfolio, is set out below. BlackRock has defined ESG integration as the practice of incorporating financially material E, S and/or G data and information and consideration of sustainability risks into investment decisions with the objective of enhancing risk-adjusted returns. ESG integration does not change the Company’s investment objective.
More information on sustainability risks may be found in the AIFMD Fund Disclosures document of the Company available on the Company’s website at www.blackrock.com/uk/brfi.
BlackRock’s approach to ESG integration
BlackRock believes that sustainability risks, including climate risks, are investment risks. As a fiduciary, BlackRock manages material risks and opportunities that could impact portfolios. Sustainability can be a driver of investment risks and opportunities, and BlackRock incorporates them in its firm wide processes when they are material. This in turn (in BlackRock’s view) is likely to drive a significant reallocation of capital away from traditional carbon intensive industries over the next decade. BlackRock believes that carbon-intensive companies will play an integral role in unlocking the full potential of the energy transition, and to do this, they must be prepared to adapt, innovate and pivot their strategies towards a low carbon economy.
BlackRock incorporates into its firmwide processes relevant, financially material information, including financially material data and information related to ESG. BlackRock’s investment view is that doing so can provide better risk-adjusted returns for its clients over the long term.
BlackRock’s clients have a wide range of perspectives on a variety of issues and investment themes, including sustainable and low-carbon transition investing. Given the wide range of unique and varied investment objectives sought by its clients, BlackRock’s investment teams have a range of approaches to considering financially material E, S, and/or G factors. As with other investment risks and opportunities, the financial materiality of E, S and/or G considerations may vary by issuer, sector, product, mandate, and time horizon. Depending on the investment approach, this financially material E, S and/or G data or information may help inform due diligence, portfolio or index construction, and/or monitoring processes of client portfolios, as well as BlackRock’s approach to risk management.
BlackRock’s ESG integration framework is built upon its history as a firm founded on the principle of thorough and thoughtful risk management. Aladdin, BlackRock’s core risk management and investment technology platform, allows investors to leverage financially material E, S and/or G data or information as well as the combined experience of BlackRock’s investment teams to effectively identify investment opportunities and investment risks. BlackRock’s heritage in risk management combined with the strength of the Aladdin platform enables BlackRock’s approach to ESG integration.
BlackRock structures its approach around three main pillars: investment processes, material insights and transparency. These pillars underpin ESG integration at BlackRock and they are supported by equipping BlackRock employees with investment relevant E, S and/or G data, tools, and education.
More information in respect of BlackRock’s approach to ESG integration can be found at https://www.blackrock.com/corporate/literature/publication/blk-esg-investment-statement-web.pdf.
BlackRock Investment Stewardship
The BlackRock Investment Stewardship (BIS) team takes a long-term approach in its stewardship efforts, reflecting the investment horizons of the majority of BlackRock’s clients. BIS’ activities include engaging with companies, proxy voting on clients’ behalf, contributing to industry dialogue on stewardship, and reporting on its activities. These activities are the main components of the stewardship toolkit and are performed all year long. BIS aims to take a globally consistent approach, while recognising the unique markets and sectors in which companies operate.
BIS benchmark policies
The BIS Global Principles, regional voting guidelines and engagement priorities (website links listed below and collectively, the ‘BIS benchmark policies’) set out the core elements of corporate governance that guide BIS’ efforts globally and within each regional market, including when engaging with companies and voting at shareholder meetings when authorised to do so on behalf of clients. BIS is committed to transparency in terms of disclosure of its stewardship activities on behalf of clients and publishes these benchmark policies to help BlackRock’s clients understand its work to advance their interests as long-term investors in public companies. Each year, BIS reviews its benchmark policies and updates them as necessary to reflect changes in market standards and regulations, insights gained over the year through third-party and its own research, and feedback from clients and companies. Additionally, BIS publishes both annual and quarterly reports detailing its stewardship activities, as well as vote bulletins that describe its rationale for certain votes at high-profile shareholder meetings. More detail in respect of BIS reporting can be found at www.blackrock.com/corporate/insights/investment-stewardship.
Global Principles
The BIS Global Principles reflect BIS’ views on the globally-applicable fundamental elements of corporate governance that contribute to a company’s ability to create long-term financial value. The Global Principles are available on BIS’ website: www.blackrock.com/corporate/literature/fact-sheet/blkresponsible-investment-engprinciples-global.pdf.
Regional voting guidelines
The BIS regional voting guidelines provide context on local market rules and norms within the framework of BIS’ overarching global corporate governance principles. The regional voting guidelines help provide clients, companies, and others guidance on BIS’ position on common voting matters in each market. BIS’ regional voting guidelines are available on its website: www.blackrock.com/corporate/insights/investment-stewardship#stewardship-policies.
Engagement priorities
The BIS engagement priorities are the five themes on which BIS most frequently engages with companies, where they are relevant and a source of material business risk or opportunity. The engagement priorities are available on BIS’ website: www.blackrock.com/corporate/literature/publication/blk-stewardship-priorities-final.pdf.
BlackRock’s reporting and disclosures
In terms of its own reporting, BlackRock believes that the Sustainability Accounting Standards Board provides a clear set of standards for reporting sustainability information across a wide range of issues, from labour practices to data privacy to business ethics. For evaluating and reporting climate-related risks, as well as the related governance issues that are essential to managing them, the Task Force on Climate-related Financial Disclosures (TCFD) provides a valuable framework. BlackRock recognises that reporting to these standards requires significant time, analysis, and effort. BlackRock’s 2023 TCFD report can be found at www.blackrock.com/corporate/literature/continuous-disclosure-and-important-information/tcfd-report-2023-blkinc.pdf.
BY ORDER OF THE BOARD
KEVIN MAYGER
FOR AND ON BEHALF OF
BLACKROCK INVESTMENT MANAGEMENT (UK) LIMITED
Company Secretary
4 December 2024
Related Party Transactions
BlackRock Fund Managers Limited (BFM) provides management and administration services to the Company under a contract which is terminable on six months’ notice. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Further details of the investment management contract are disclosed in the Directors’ Report in the Company’s Annual Report for the year ended 30 September 2024.
The investment management fee due for the year ended 30 September 2024 amounted to US$4,204,000 (2023: US$3,783,000). The performance fee payable for the year ended 30 September 2024 amounted to US$3,510,000 (2023: US$8,272,000).
At the year end, US$3,204,000 (2023: US$2,902,000) was outstanding in respect of management fees and US$3,510,000 (2023: US$8,272,000) was outstanding in respect of performance fees.
In addition to the above services, BIM (UK) has provided the Company with marketing services. The total fees paid or payable for these services for the year ended 30 September 2024 amounted to US$211,000 (2023: US$90,000) excluding VAT. Marketing fees of US$344,000 (US$143,000) excluding VAT were outstanding at the year end.
The Company has an investment in the BlackRock Institutional Cash Series plc – US Dollar Liquid Environmentally Aware Fund of US$68,559,000 (2023: US$64,875,000) at the year end, which is a fund managed by a company within the BlackRock Group. The Company’s investment in the Cash Fund is held in a share class on which no management fees are paid to BlackRock to avoid double dipping.
Disclosures of the Directors’ interests in the ordinary shares of the Company and fees and expenses payable to the Directors are set out in the Directors’ Remuneration Report in the Company’s Annual Report for the year ended 30 September 2024. At 30 September 2024, US$20,000 (£15,000) (2023: US$20,000 (£17,000)) was outstanding in respect of Directors’ fees.
Statement of Directors’ responsibilities in respect of the Annual Report and Financial Statements
The Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements in accordance with applicable United Kingdom law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors are required to prepare the financial statements in accordance with UK-adopted International Accounting Standards (IAS). Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
- present fairly the financial position, financial performance and cash flows of the Company;
- select suitable accounting policies in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;
- present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
- make judgements and estimates that are reasonable and prudent;
- state whether the financial statements have been prepared in accordance with IAS, subject to any material departures disclosed and explained in the financial statements;
- provide additional disclosures when compliance with the specific requirements in IAS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company’s financial position and financial performance; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are also responsible for preparing the Strategic Report, the Directors’ Report, the Directors’ Remuneration Report, Corporate Governance Statement and the Report of the Audit and Management Engagement Committee in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure Guidance and Transparency Rules. The Directors have delegated responsibility to the Investment Manager and the AIFM for the maintenance and integrity of the Company’s corporate and financial information included on BlackRock’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the Directors, who were appointed as at the date of the Annual Report, confirms to the best of their knowledge that:
- the financial statements, which have been prepared in accordance with IAS, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and
- the Strategic Report contained in the Annual Report and Financial Statements includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
The 2018 UK Corporate Governance Code also requires Directors to ensure that the Annual Report and Financial Statements are fair, balanced and understandable. In order to reach a conclusion on this matter, the Board has requested that the Audit and Management Engagement Committee advise on whether it considers that the Annual Report and Financial Statements fulfil these requirements. The process by which the Committee has reached these conclusions is set out in the Audit and Management Engagement Committee’s report in the Company’s Annual Report for the year ended 30 September 2024. As a result, the Board has concluded that the Annual Report and Financial Statements for the year ended 30 September 2024, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.
FOR AND ON BEHALF OF THE BOARD
KATRINA HART
Chair
4 December 2024
Statement of comprehensive income for the year ended 30 September 2024
|
|
| 2024 | 2023 | ||||
|
| | Revenue | Capital | Total | Revenue | Capital | Total |
| Income from investments held at fair value through profit or loss | 3 | 20,656 | – | 20,656 | 17,402 | – | 17,402 |
| Net income from contracts for difference | 3 | 2,425 | – | 2,425 | 1,985 | 565 | 2,550 |
| Other income | 3 | 209 | – | 209 | 251 | – | 251 |
|
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
| Total income |
| 23,290 | – | 23,290 | 19,638 | 565 | 20,203 |
|
|
| ========= | ========= | ========= | ========= | ========= | ========= |
| Net profit on investments held at fair value through profit or loss |
| – | 54,953 | 54,953 | – | 58,566 | 58,566 |
| Net loss on foreign exchange |
| – | (1,197) | (1,197) | – | (1,980) | (1,980) |
| Net (loss)/profit from derivatives |
| – | (7,902) | (7,902) | – | 12,523 | 12,523 |
|
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
| Total |
| 23,290 | 45,854 | 69,144 | 19,638 | 69,674 | 89,312 |
|
|
| ========= | ========= | ========= | ========= | ========= | ========= |
| Expenses |
|
|
|
|
|
|
|
| Investment management and performance fees | 4 | (841) | (6,873) | (7,714) | (757) | (11,298) | (12,055) |
| Other operating expenses | 5 | (1,162) | (92) | (1,254) | (942) | (68) | (1,010) |
|
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
| Total operating expenses |
| (2,003) | (6,965) | (8,968) | (1,699) | (11,366) | (13,065) |
|
|
| ========= | ========= | ========= | ========= | ========= | ========= |
| Net profit on ordinary activities before finance costs and taxation |
| 21,287 | 38,889 | 60,176 | 17,939 | 58,308 | 76,247 |
| Finance costs |
| (23) | (92) | (115) | (23) | (94) | (117) |
|
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
| Net profit on ordinary activities before taxation |
| 21,264 | 38,797 | 60,061 | 17,916 | 58,214 | 76,130 |
| Taxation (charge)/credit |
| (2,380) | 867 | (1,513) | (2,044) | 770 | (1,274) |
|
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
| Profit for the year |
| 18,884 | 39,664 | 58,548 | 15,872 | 58,984 | 74,856 |
|
|
| ========= | ========= | ========= | ========= | ========= | ========= |
| Earnings per ordinary share (cents) | 7 | 9.97 | 20.95 | 30.92 | 8.38 | 31.16 | 39.54 |
|
|
| ========= | ========= | ========= | ========= | ========= | ========= |
The total columns of this statement represent the Company’s Statement of Comprehensive Income, prepared in accordance with UK-adopted International Accounting Standards (IAS). The supplementary revenue and capital accounts are both prepared under guidance published by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. All income is attributable to the equity holders of the Company.
The Company does not have any other comprehensive income. The net profit for the year disclosed above represents the Company’s total comprehensive income.
Statement of changes in equity for the year ended 30 September 2024
|
|
| Called | Capital | |
|
|
|
| For the year ended 30 September 2024 |
|
|
|
|
|
|
|
| At 30 September 2023 |
| 2,418 | 5,798 | 308,804 | 36,153 | 10,425 | 363,598 |
| Total comprehensive income: |
|
|
|
|
|
|
|
| Net profit for the year |
| – | – | – | 39,664 | 18,884 | 58,548 |
| Transactions with owners, recorded directly to equity: |
|
|
|
|
|
|
|
| Dividends paid1 | 6 | – | – | – | – | (15,903) | (15,903) |
|
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
| At 30 September 2024 |
| 2,418 | 5,798 | 308,804 | 75,817 | 13,406 | 406,243 |
|
|
| ========= | ========= | ========= | ========= | ========= | ========= |
| For the year ended 30 September 2023 |
|
|
|
|
|
|
|
| At 30 September 2022 |
| 2,418 | 5,798 | 308,804 | (22,831) | 8,467 | 302,656 |
| Total comprehensive income: |
|
|
|
|
|
|
|
| Net profit for the year |
| – | – | – | 58,984 | 15,872 | 74,856 |
| Transactions with owners, recorded directly to equity: |
|
|
|
|
|
|
|
| Dividends paid2 | 6 | – | – | – | – | (13,914) | (13,914) |
|
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
| At 30 September 2023 |
| 2,418 | 5,798 | 308,804 | 36,153 | 10,425 | 363,598 |
|
|
| ========= | ========= | ========= | ========= | ========= | ========= |
1 Final dividend of 4.90 cents per share for the year ended 30 September 2023, declared on 30 November 2023 and paid on 14 February 2024 and an interim dividend of 3.50 cents per share for the year ended 30 September 2024, declared on 31 May 2024 and paid on 2 July 2024.
2 Final dividend of 4.25 cents per share for the year ended 30 September 2022, declared on 7 December 2022 and paid on 14 February 2023 and an interim dividend of 3.10 cents per share for the year ended 30 September 2023, declared on 6 June 2023 and paid on 7 July 2023.
For information on the Company’s distributable reserves please refer to note 16 in the Company’s Annual Report for the year ended 30 September 2024.
Statement of financial position as at 30 September 2024
|
|
| 2024 | 2023 |
| Non current assets |
|
|
|
| Investments held at fair value through profit or loss |
| 412,308 | 374,517 |
| Current assets |
|
|
|
| Current tax asset |
| 803 | 444 |
| Other receivables |
| 3,934 | 5,085 |
| Derivative financial assets held at fair value through profit or loss – contracts for difference |
| 2,756 | 1,402 |
| Cash and cash equivalents – cash at bank |
| 2,284 | 5,308 |
| Cash collateral pledged with brokers |
| 1,305 | 2,435 |
|
|
| --------------- | --------------- |
| Total current assets |
| 11,082 | 14,674 |
|
|
| ========= | ========= |
| Total assets |
| 423,390 | 389,191 |
|
|
| ========= | ========= |
| Current liabilities |
|
|
|
| Cash and cash equivalents – bank overdraft |
| – | (25) |
| Other payables |
| (12,667) | (20,015) |
| Derivative financial liabilities held at fair value through profit or loss – contracts for difference |
| (1,561) | (3,234) |
| Liability for cash collateral received |
| (2,900) | (2,300) |
|
|
| --------------- | --------------- |
| Total current liabilities |
| (17,128) | (25,574) |
|
|
| ========= | ========= |
| Total assets less current liabilities |
| 406,262 | 363,617 |
|
|
| ========= | ========= |
| Non current liabilities |
|
|
|
| Management shares of £1.00 each (one quarter paid up) |
| (19) | (19) |
|
|
| --------------- | --------------- |
| Net assets |
| 406,243 | 363,598 |
|
|
| ========= | ========= |
| Equity attributable to equity holders |
|
|
|
| Called up share capital | 8 | 2,418 | 2,418 |
| Capital redemption reserve | 9 | 5,798 | 5,798 |
| Special reserve | 9 | 308,804 | 308,804 |
| Capital reserves | 9 | 75,817 | 36,153 |
| Revenue reserve | 9 | 13,406 | 10,425 |
|
|
| --------------- | --------------- |
| Total equity |
| 406,243 | 363,598 |
|
|
| ========= | ========= |
| Net asset value per ordinary share (cents) | 7 | 214.57 | 192.05 |
|
|
| ========= | ========= |
Cash flow statement for the year ended 30 September 2024
|
| 2024 | 2023 |
| Operating activities |
|
|
| Net profit on ordinary activities before taxation1 | 60,061 | 76,130 |
| Add back finance costs | 115 | 117 |
| Net profit on investments held at fair value through profit or loss (including transaction costs) | (54,953) | (58,566) |
| Net loss/(profit) from derivatives (including transaction costs) | 7,902 | (12,523) |
| Financing costs on derivatives | (4,835) | (4,107) |
| Net loss on foreign exchange | 1,197 | 1,980 |
| Sales of investments held at fair value through profit or loss | 236,900 | 183,095 |
| Purchases of investments held at fair value through profit or loss | (216,098) | (207,654) |
| Sales of Cash Fund2 | 161,427 | 163,097 |
| Purchases of Cash Fund2 | (165,067) | (156,544) |
| Amounts paid for losses on closure of derivatives | (47,584) | (42,659) |
| Amounts received on profit on closure of derivatives | 41,490 | 57,263 |
| Increase in other receivables | (489) | (855) |
| (Decrease)/increase in other payables | (4,210) | 10,651 |
| Decrease/(increase) in amounts due from brokers | 1,640 | (2,885) |
| (Decrease)/increase in amounts due to brokers | (3,138) | 4,506 |
| Cash collateral pledged with brokers | 1,130 | 4,969 |
| Cash collateral received from brokers | 600 | 1,650 |
| Taxation paid | (1,872) | (1,272) |
|
| --------------- | --------------- |
| Net cash inflow from operating activities | 14,216 | 16,393 |
|
| ========= | ========= |
| Financing activities |
|
|
| Interest paid | (115) | (117) |
| Dividends paid | (15,903) | (13,914) |
|
| --------------- | --------------- |
| Net cash outflow from financing activities | (16,018) | (14,031) |
|
| ========= | ========= |
| (Decrease)/increase in cash and cash equivalents | (1,802) | 2,362 |
| Effect of foreign exchange rate changes | (1,197) | (1,980) |
|
| --------------- | --------------- |
| Change in cash and cash equivalents | (2,999) | 382 |
| Cash and cash equivalents at the start of the year | 5,283 | 4,901 |
|
| --------------- | --------------- |
| Cash and cash equivalents at the end of the year | 2,284 | 5,283 |
|
| ========= | ========= |
| Comprised of: |
|
|
| Cash at bank | 2,284 | 5,308 |
| Bank overdraft | – | (25) |
|
| --------------- | --------------- |
|
| 2,284 | 5,283 |
|
| ========= | ========= |
1 Dividends and interest received in cash during the year amounted to US$15,293,000 and US$2,964,000 respectively (2023: US$14,859,000 and US$3,182,000).
2 Cash Fund represents investment in the BlackRock Institutional Cash Series plc - US Dollar Liquid Environmentally Aware Fund.
Notes to the financial statements for the year ended 30 September 2024
1. Principal activity
The principal activity of the Company is that of an investment trust company within the meaning of Section 1158 of the Corporation Tax Act 2010. The Company was incorporated on 15 October 2010, and this is the thirteenth Annual Report.
2. Accounting policies
The principal accounting policies adopted by the Company have been applied consistently, other than where new policies have been adopted and are set out below.
(a) Basis of preparation
The financial statements have been prepared under the historic cost convention modified by the revaluation of certain financial assets and financial liabilities held at fair value through profit or loss and in accordance with UK-adopted IAS. All of the Company’s operations are of a continuing nature.
Insofar as the Statement of Recommended Practice (SORP) for investment trust companies and venture capital trusts, issued by the Association of Investment Companies (AIC) in October 2019 and updated in July 2022, is compatible with UK-adopted IAS, the financial statements have been prepared in accordance with the guidance set out in the SORP.
Substantially, all of the assets of the Company consist of securities that are readily realisable and, accordingly, the Directors are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future for the period to 30 September 2026, being a period of at least twelve months from the date of approval of the financial statements, and therefore consider the going concern assumption to be appropriate. The Directors have reviewed the income and expense projections and the liquidity of the investment portfolio in making their assessment.
The Directors have considered the impact of climate change on the value of the investments included in the Financial Statements and have concluded that there was no further impact of climate change to be considered as the investments are valued based on market pricing as required by IFRS 13.
None of the Company’s other assets and liabilities were considered to be potentially impacted by climate change.
The Company’s financial statements are presented in US Dollars, which is the functional currency of the Company and the currency of the primary economic environment in which the Company operates. All values are rounded to the nearest thousand dollars (US$’000) except where otherwise indicated.
Adoption of new and amended International Accounting Standards and interpretations:
IFRS 17 – Insurance contracts (effective 1 January 2023). This standard replaced IFRS 4 and applies to all types of insurance contracts. IFRS 17 provides a consistent and comprehensive model for insurance contracts covering all relevant accounting aspects.
IAS 12 – Deferred tax related to assets and liabilities arising from a single transaction (effective 1 January 2023). The International Accounting Standards Board (IASB) has amended IAS 12 Income Taxes to require companies to recognise deferred tax on particular transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences. According to the amended guidance, a temporary difference that arises on initial recognition of an asset or liability is not subject to the initial recognition exemption if that transaction gave rise to equal amounts of taxable and deductible temporary differences. These amendments might have a significant impact on the preparation of financial statements by companies that have substantial balances of right-of-use assets, lease liabilities, decommissioning, restoration and similar liabilities. The impact for those affected would be the recognition of additional deferred tax assets and liabilities.
IAS 8 – Definition of accounting estimates (effective 1 January 2023). The IASB has amended IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to help distinguish between accounting policies and accounting estimates, replacing the definition of accounting estimates.
IAS 1 and IFRS Practice Statement 2 – Disclosure of accounting policies (effective 1 January 2023). The IASB has amended IAS 1 Presentation of Financial Statements to help preparers in deciding which accounting policies to disclose in their financial statements by stating that an entity is now required to disclose material accounting policies instead of significant accounting policies.
IAS 12 – International Tax Reform Pillar Two Model Rules (effective 1 January 2023). The IASB has published amendments to IAS 12 Income Taxes to respond to stakeholders’ concerns about the potential implications of the imminent implementation of the OECD pillar two rules on the accounting for income taxes. The amendment is an exception to the requirements in IAS 12 that an entity does not recognise and does not disclose information about deferred tax assets as liabilities related to the OECD pillar two income taxes and a requirement that current tax expenses must be disclosed separately to pillar two income taxes.
The amendment of these standards did not have any significant impact on the Company.
Relevant International Accounting Standards that have yet to be adopted:
IAS 1 – Classification of liabilities as current or non current (effective 1 January 2024). The IASB has amended IAS 1 Presentation of Financial Statements to clarify its requirement for the presentation of liabilities depending on the rights that exist at the end of the reporting period. The amendment requires liabilities to be classified as non current if the entity has a substantive right to defer settlement for at least 12 months at the end of the reporting period. The amendment no longer refers to unconditional rights.
IAS 1 – Non current liabilities with covenants (effective 1 January 2024). The IASB has amended IAS 1 Presentation of Financial Statements to introduce additional disclosures for liabilities with covenants within 12 months of the reporting period. The additional disclosures include the nature of covenants, when the entity is required to comply with covenants, the carrying amount of related liabilities and circumstances that may indicate that the entity will have difficulty complying with the covenants.
IAS 21 – Lack of exchangeability (effective 1 January 2025). The IASB issued amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates to specify how an entity should assess whether a currency is exchangeable and how it should determine a spot exchange rate when exchangeability is lacking. The amendments also require disclosure of information that enables users of its financial statements to understand how the currency not being exchangeable into the other currency affects, or is expected to affect, the entity’s financial performance, financial position and cash flows.
IFRS 18 – Presentation and disclosure in financial statements (effective 1 January 2027). The IASB issued IFRS 18, which replaces IAS 1 Presentation of Financial Statements. IFRS 18 introduces new requirements for presentation within the statement of profit or loss, including specified totals and subtotals. Furthermore, entities are required to classify all income and expenses within the statement of profit or loss into one of five categories: operating, investing, financing, income taxes and discontinued operations, whereof the first three are new. It also requires disclosure of newly defined management-defined performance measures, subtotals of income and expenses, and includes new requirements for aggregation and disaggregation of financial information based on the identified ‘roles’ of the primary financial statements and the notes.
None of the standards that have been issued, but are not yet effective, are expected to have a material impact on the Company.
(b) Presentation of the Statement of Comprehensive Income
In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and a capital nature has been presented alongside the Statement of Comprehensive Income.
(c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single segment of business being investment business.
(d) Income
Dividends receivable on equity shares are recognised as revenue for the year on an ex-dividend basis. Where no ex-dividend date is available, dividends receivable on or before the year end are treated as revenue for the year. Provision is made for any dividends and interest income not expected to be received. Special dividends, if any, are treated as a capital or a revenue receipt depending on the facts or circumstances of each particular case. The return on a debt security is recognised on a time apportionment basis so as to reflect the effective yield on the debt security. Interest income and deposit interest are accounted for on an accruals basis.
Where the Company has elected to receive its dividends in the form of additional shares rather than in cash, the cash equivalent of the dividend is recognised as income. Any excess in the value of the shares received over the amount of the cash dividend is recognised in capital.
(e) Expenses
All expenses, including finance costs, are accounted for on an accruals basis. Expenses have been charged wholly to the revenue account of the Statement of Comprehensive Income, except as follows:
- expenses which are incidental to the acquisition or sale of an investment are charged to the capital account of the Statement of Comprehensive Income. Details of transaction costs on the purchases and sales of investments are disclosed within note 10 to the financial statements in the Company’s Annual Report for the year ended 30 September 2024;
- expenses are treated as capital where a connection with the maintenance or enhancement of the value of the investments can be demonstrated;
- the investment management fee and finance costs have been allocated 20% to the revenue account and 80% to the capital account of the Statement of Comprehensive Income in line with the Board’s expected long-term split of returns, in the form of capital gains and income, respectively, from the investment portfolio; and
- performance fees are allocated 100% to the capital account of the Statement of Comprehensive Income as fees are generated in connection with enhancing the value of the investment portfolio.
(f) Taxation
The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that were applicable at the balance sheet date.
Where expenses are allocated between capital and revenue accounts, any tax relief in respect of the expenses is allocated between capital and revenue returns on the marginal basis using the Company’s effective rate of corporation tax for the accounting period.
Deferred taxation is recognised in respect of all temporary differences that have originated but not reversed at the financial reporting date, where transactions or events that result in an obligation to pay more taxation in the future or right to pay less taxation in the future have occurred at the financial reporting date. This is subject to deferred taxation assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted. Deferred taxation assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise.
(g) Investments held at fair value through profit or loss
In accordance with IFRS 9, the Company classifies its investments at initial recognition as held at fair value through profit or loss and are managed and evaluated on a fair value basis in accordance with its investment strategy and business model.
All investments are measured initially and subsequently at fair value through profit or loss. Purchases of investments are recognised on a trade date basis. Sales of investments are recognised at the trade date of the disposal.
The fair value of the financial investments is based on their quoted bid price at the financial reporting date, without deduction for the estimated future selling costs. This policy applies to all current and non-current asset investments held by the Company. The fair value of the P-Notes are, when held, based on the quoted bid price of the underlying equity to which they relate.
Changes in the value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Statement of Comprehensive Income as “Net profit/(loss) on investments held at fair value through profit or loss”. Also included within the heading are transaction costs in relation to the purchase or sale of investments.
For all financial instruments not traded in an active market, the fair value is determined by using various valuation techniques. Valuation techniques include market approach (i.e., using recent arm’s length market transactions adjusted as necessary and reference to the current market value of another instrument that is substantially the same) and the income approach (i.e., discounted cash flow analysis and option pricing models making as much use of available and supportable market data where possible). See note 2(o) below.
(h) Derivatives
The Company can hold long and short positions in contracts for difference (CFDs) which are held at fair value based on the bid prices of the underlying securities in respect of long positions, and the offer prices of the underlying securities in respect of short positions.
Profits and losses on derivative transactions are recognised in the Statement of Comprehensive Income. They are shown in the capital account of the Statement of Comprehensive Income if they are of a capital nature and are shown in the revenue account of the Statement of Comprehensive Income if they are of a revenue nature. To the extent that any profits or losses are of a mixed revenue and capital nature, they are apportioned between revenue and capital accordingly.
(i) Other receivables and other payables
Other receivables and other payables do not carry any interest and are short term in nature and are accordingly stated on an amortised cost basis.
(j) Dividends payable
Under IAS, final dividends should not be accrued in the financial statements unless they have been approved by shareholders before the financial reporting date. Interim dividends should not be recognised in the financial statements unless they have been paid.
Dividends payable to equity shareholders are recognised in the Statement of Changes in Equity.
(k) Foreign currency translation
Transactions involving foreign currencies are converted at the rate ruling at the date of the transaction. Foreign currency monetary assets and liabilities and non-monetary assets held at fair value are translated into US Dollars at the rate ruling on the financial reporting date. Foreign exchange differences arising on translation are recognised in the Statement of Comprehensive Income as a revenue or capital item depending on the income or expense to which they relate. For investment transactions and investments held at the year end, denominated in a foreign currency, the resulting gains or losses are included in the profit/(loss) on investments held at fair value through profit or loss in the Statement of Comprehensive Income.
(l) Cash and cash equivalents
Cash comprises cash in hand, bank overdrafts and on demand deposits. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value.
The Company’s investment in the Cash Fund is managed as part of the Company’s investment policy and, accordingly, this investment along with purchases and sales of this investment has been classified in the Statement of Financial Position as an investment and not as a cash equivalent as defined under IAS 7.
(m) Bank borrowings
Bank overdrafts and loans are recorded as the proceeds received. Finance charges, including any premium payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the Statement of Comprehensive Income using the effective interest rate method and are added to the carrying amount of the instrument.
(n) Share repurchases and share reissues
Shares repurchased and subsequently cancelled – share capital is reduced by the nominal value of the shares repurchased and the capital redemption reserve is correspondingly increased in accordance with Section 733 of the Companies Act 2006. The full cost of the repurchase is charged to the special reserve.
Shares repurchased and held in treasury – the full cost of the repurchase is charged to the special reserve.
Where treasury shares are subsequently re-issued:
- amounts received to the extent of the repurchase price are credited to the special reserve and capital reserves based on a weighted average basis of amounts utilised from these reserves on repurchases; and
- any surplus received in excess of the repurchase price is taken to the share premium account.
Where new shares are issued, amounts received to the extent of any surplus received in excess of the par value are taken to the share premium account.
Share issue costs are charged to the share premium account. Costs on share reissues are charged to the special reserve and capital reserves.
(o) Critical accounting estimates and judgements
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates and assumptions will, by definition, seldom equal the related actual results. Estimates and judgements are regularly evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Directors do not believe that any accounting judgements or estimates have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year.
3. Income
|
| 2024 | 2023 |
| Investment income: |
|
|
| UK dividends | 576 | 362 |
| Stock dividends | – | 14 |
| Overseas dividends | 16,276 | 12,997 |
| Overseas special dividends | 913 | 1,006 |
| Interest from Cash Fund | 2,891 | 3,023 |
|
| --------------- | --------------- |
| Total investment income | 20,656 | 17,402 |
|
| ========= | ========= |
| Net income from contracts for difference (note 11 in the Company’s Annual Report for the year ended 30 September 2024) | 2,425 | 1,985 |
|
| --------------- | --------------- |
| Total income from contracts for differences | 2,425 | 1,985 |
|
| ========= | ========= |
| Other income: |
|
|
| Interest received on cash collateral | 135 | 68 |
| Deposit interest | 74 | 183 |
|
| --------------- | --------------- |
| Total other income | 209 | 251 |
|
| ========= | ========= |
| Total | 23,290 | 19,638 |
|
| ========= | ========= |
Dividends and interest received in cash during the year amounted to US$15,293,000 and US$2,964,000 respectively (2023: US$14,859,000 and US$3,182,000).
No special dividends from equity investments have been recognised in capital for the year ended 30 September 2024 (2023: US$nil). No special dividends from long contracts for difference have been recognised in capital for the year ended 30 September 2024 and included within net income from contracts for difference in the capital account in the Statement of Comprehensive Income (2023: US$565,000).
4. Investment management and performance fees
|
| 2024 | 2023 | ||||
|
| Revenue | Capital | Total | Revenue | Capital | Total |
| Investment management fee | 841 | 3,363 | 4,204 | 757 | 3,026 | 3,783 |
| Performance fee | – | 3,510 | 3,510 | – | 8,272 | 8,272 |
|
| --------------- | --------------- | --------------- | --------------- | --------------- | --------------- |
| Total | 841 | 6,873 | 7,714 | 757 | 11,298 | 12,055 |
|
| ========= | ========= | ========= | ========= | ========= | ========= |
An investment management fee equivalent to 1.10% per annum of the Company’s gross assets (defined as the aggregate net assets of the long equity and CFD portfolios of the Company) is payable to the Manager. In addition, the Manager is entitled to receive a performance fee at a rate of 10% of any increase in the net asset value (NAV) at the end of a performance period over and above what would have been achieved had the NAV since launch increased in line with the Benchmark Index, which, since 1 April 2018, is a composite of the MSCI Emerging Markets Index ex Selected Countries + MSCI Frontier Markets Index.
For the purposes of the calculation of the performance fee, the performance of the NAV total return since launch has been measured against the performance of the Benchmark Index on a blended basis.
For the year ended 30 September 2024, the Company’s NAV outperformed the Benchmark Index on a US Dollar basis by 0.8% (2023: outperformed by 20.1%) resulting in a cumulative outperformance since launch of 68.5% (2023: cumulative outperformance of 57.9%); therefore, a performance fee of US$3,510,000 has been accrued (2023: US$8,272,000). Any accrued performance fee is included within other payables in the Statement of Financial Position.
The performance fee payable in any year is capped at 2.5% of the gross assets of the Company if there is an increase in the NAV per share, or 1% of the gross assets of the Company if there is a decrease in the NAV per share, at the end of the relevant performance period. Any outperformance in excess of the cap for a period may be carried forward to the next two performance periods, subject to the then applicable annual cap. The performance fee is also subject to a high watermark such that any performance fee is only payable to the extent that the cumulative outperformance of the NAV relative to the Benchmark Index is greater than what would have been achieved had the NAV increased in line with the Benchmark Index since the last date in relation to which a performance fee had been paid. This mechanism requires the Manager to catch up any cumulative underperformance against the Benchmark Index since launch before a performance fee can be generated.
The investment management fee is allocated 20% to the revenue account and 80% to the capital account and the performance fee is wholly allocated to the capital account of the Statement of Comprehensive Income. There is no additional fee for company secretarial and administration services.
5. Other operating expenses
|
| 2024 | 2023 |
| Allocated to revenue: |
|
|
| Custody fee | 276 | 229 |
| Auditor’s remuneration: |
|
|
| – audit services | 61 | 62 |
| – other assurance services1 | 10 | 9 |
| Registrar’s fee | 38 | 32 |
| Directors’ emoluments2 | 258 | 243 |
| Broker fees | 40 | 38 |
| Depositary fees3 | 38 | 33 |
| Marketing fees | 211 | 90 |
| AIC fees | 25 | 24 |
| FCA fees | 23 | 18 |
| Printing and postage fees | 47 | 58 |
| Employer NI contributions | 25 | 31 |
| Stock exchange listings | 17 | 13 |
| Legal and professional fees | 24 | 21 |
| Write back of prior year expenses4 | (17) | (27) |
| Other administrative costs | 86 | 68 |
|
| --------------- | --------------- |
| Total revenue expenses | 1,162 | 942 |
|
| ========= | ========= |
| Allocated to capital: |
|
|
| Custody transaction charges5 | 92 | 68 |
|
| --------------- | --------------- |
| Total | 1,254 | 1,010 |
|
| ========= | ========= |
| The Company’s ongoing charges6, calculated as a percentage of average daily net assets and using the management fee and all other operating expenses, excluding performance fees, finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation, prior year expenses written back and certain non-recurring items, were: | | |
|
| --------------- | --------------- |
| The Company’s ongoing charges6, calculated as a percentage of average daily net assets and using the management fee and all other operating expenses and including performance fees but excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation, prior year expenses written back and certain non-recurring items, were: | | |
|
| ========= | ========= |
1 Fees for other assurance services of £7,100 (US$10,000) (2023: £7,100 (US$9,000)) relate to the review of the interim financial statements.
2 Further information on Directors’ emoluments can be found in the Directors’ Remuneration Report in the Company’s Annual Report for the year ended 30 September 2024. The Company has no employees.
3 All expenses other than depositary fees are paid in British Pound Sterling and are therefore subject to exchange rate fluctuations.
4 Relates to Director search fees, miscellaneous fees and legal fees written back during the year (2023: Directors’ expenses, miscellaneous fees and legal fees).
5 For the year ended 30 September 2024, expenses of £69,000 (US$92,000) (2023: £56,000 (US$68,000)) were charged to the capital account of the Statement of Comprehensive Income. These relate to transaction costs charged by the Custodian on sale and purchase trades.
6 Alternative Performance Measures, see Glossary in the Company’s Annual Report for the year ended 30 September 2024.
No fees were payable in 2024 or 2023 in relation to investing in new markets.
6. Dividends
|
| | | 2024 | 2023 |
| 2023 final of 4.90 cents (2022: 4.25 cents) per ordinary share | 5 January 2024 | 14 February 2024 | 9,277 | 8,046 |
| 2024 interim of 3.50 cents (2023: 3.10 cents) per ordinary share | 14 June 2024 | 2 July 2024 | 6,626 | 5,868 |
|
|
|
| --------------- | --------------- |
|
|
|
| 15,903 | 13,914 |
|
|
|
| ========= | ========= |
The total dividends payable in respect of the year ended 30 September 2024 which form the basis of Section 1158 of the Corporation Tax Act 2010 and Section 833 of the Companies Act 2006, and the amounts proposed, meet the relevant requirements as set out in this legislation.
|
| 2024 | 2023 |
| Interim dividend of 3.50 cents per ordinary share (2023: 3.10 cents) | 6,626 | 5,868 |
| Final proposed dividend of 6.00 cents per ordinary share (2023: 4.90 cents)1 | 11,358 | 9,277 |
|
| --------------- | --------------- |
|
| 17,984 | 15,145 |
|
| ========= | ========= |
1 Based on 189,300,748 ordinary shares in issue on 2 December 2024.
7. Earnings and net asset value per ordinary share
Revenue earnings, capital earnings and net asset value per ordinary share are shown below and have been calculated using the following:
|
| Year ended | Year ended |
|
|
|
|
| Net revenue profit attributable to ordinary shareholders (US$'000) | 18,884 | 15,872 |
| Net capital profit attributable to ordinary shareholders (US$'000) | 39,664 | 58,984 |
|
| ----------------- | ----------------- |
| Total profit attributable to ordinary shareholders (US$'000) | 58,548 | 74,856 |
|
| ========== | ========== |
| Equity shareholders’ funds (US$’000) | 406,243 | 363,598 |
|
| ========== | ========== |
| The weighted average number of ordinary shares in issue during the year on which the earnings per ordinary share was calculated was: | 189,325,748 | 189,325,748 |
| The actual number of ordinary shares in issue at the end of the year on which the net asset value per ordinary share was calculated was: | 189,325,748 | 189,325,748 |
| Earnings per ordinary share |
|
|
| Revenue earnings per share (cents) – basic and diluted | 9.97 | 8.38 |
| Capital earnings per share (cents) – basic and diluted | 20.95 | 31.16 |
|
| ----------------- | ----------------- |
| Total earnings per share (cents) – basic and diluted | 30.92 | 39.54 |
|
| ========== | ========== |
|
| As at | As at |
| Net asset value per ordinary share (cents) | 214.57 | 192.05 |
| Ordinary share price (cents)1 | 194.50 | 175.76 |
| Net asset value per ordinary share (pence)1 | 159.96 | 157.35 |
| Ordinary share price (pence) | 145.00 | 144.00 |
|
| ========== | ========== |
1 Based on an exchange rate of US$1.3414 to £1 at 30 September 2024 (30 September 2023: US$1.2206 to £1).
8. Called up share capital
|
| Ordinary | | | |
| Allotted, called up and fully paid share capital comprised: |
|
|
|
|
| Ordinary shares of 1 cent each: |
|
|
|
|
| At 30 September 2023 | 189,325,748 | 52,497,053 | 241,822,801 | 2,418 |
| At 30 September 2024 | 189,325,748 | 52,497,053 | 241,822,801 | 2,418 |
|
| ========= | ========= | ========= | ========= |
During the year, the Company did not issue or buy back any ordinary shares (2023: nil). Additionally, during the year no shares were transferred into treasury (2023: nil).
Since the year end and up to 2 December 2024, the Company bought 25,000 ordinary shares back at an average price of 149.00p per share for a total cost of £37,000. No shares were issued during the year under review or post year end from 1 October 2024 up to the date of this report.
9. Reserves
For the year ended 30 September 2024
|
|
| Distributable reserves | |||
|
|
|
|
| Capital |
|
| At 30 September 2023 | 5,798 | 308,804 | 31,765 | 4,388 | 10,425 |
| Movement during the year: |
|
|
|
|
|
| Total comprehensive income: |
|
|
|
|
|
| Net profit for the year | – | – | 4,000 | 35,664 | 18,884 |
| Transactions with owners, recorded directly to equity: |
|
|
|
|
|
| Dividends paid | – | – | – | – | (15,903) |
|
| --------------- | --------------- | --------------- | --------------- | --------------- |
| At 30 September 2024 | 5,798 | 308,804 | 35,765 | 40,052 | 13,406 |
|
| ========= | ========= | ========= | ========= | ========= |
For the year ended 30 September 2023
|
|
| Distributable reserves | |||
|
|
|
|
| Capital |
|
| At 30 September 2022 | 5,798 | 308,804 | 21,748 | (44,579) | 8,467 |
| Movement during the year: |
|
|
|
|
|
| Total comprehensive income: |
|
|
|
|
|
| Net profit for the year | – | – | 10,017 | 48,967 | 15,872 |
| Transactions with owners, recorded directly to equity: |
|
|
|
|
|
| Dividends paid | – | – | – | – | (13,914) |
|
| --------------- | --------------- | --------------- | --------------- | --------------- |
| At 30 September 2023 | 5,798 | 308,804 | 31,765 | 4,388 | 10,425 |
|
| ========= | ========= | ========= | ========= | ========= |
The share premium account and capital redemption reserve are not distributable reserves under the Companies Act 2006. In accordance with ICAEW Technical Release 02/17BL on Guidance on Realised and Distributable Profits under the Companies Act 2006, the special reserve and capital reserves may be used as distributable reserves for all purposes and, in particular, the repurchase by the Company of its ordinary shares and for payments such as dividends. In accordance with the Company’s Articles of Association, the special reserve, capital reserves and the revenue reserve may be distributed by way of dividend. The gain on the capital reserve arising on the revaluation of investments of US$40,052,000 (2023: US$4,388,000) is subject to fair value movements and may not be readily realisable at short notice, as such it may not be entirely distributable. The investments are subject to financial risks, as such capital reserves (arising on investments sold) and the revenue reserve may not be entirely distributable if a loss occurred during the realisation of these investments.
In June 2011, the Company cancelled its share premium account pursuant to shareholders’ approval of a special resolution and Court approval on 17 June 2011. The share premium account, which totalled US$142,704,000 was transferred to a special reserve.
In November 2013, the Company cancelled its share premium account pursuant to shareholders’ approval of a special resolution and Court approval on 6 November 2013. The share premium account, which totalled US$88,326,000 was transferred to a special reserve.
In March 2021, the Company cancelled its share premium account pursuant to shareholders’ approval of a special resolution and Court approval on 11 March 2021. The share premium account, which totalled US$165,984,000 was transferred to a special reserve.
10. Valuation of financial instruments
Financial assets and financial liabilities are either carried in the Statement of Financial Position at their fair value (investments and derivatives) or at an amount which is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, cash at bank and bank overdrafts). IFRS 13 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The valuation techniques used by the Company are explained in the accounting policies note 2(g) to the Financial Statements in the Company’s Annual Report for the year ended 30 September 2024.
Categorisation within the hierarchy has been determined on the basis of the lowest level of input that is significant to the fair value measurement of the relevant asset.
The fair value hierarchy has the following levels:
Level 1 – Quoted market price for identical instruments in active markets
A financial instrument is regarded as quoted in an active market if quoted prices are readily available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The Company does not adjust the quoted price for these instruments.
Level 2 – Valuation techniques using observable inputs
This category includes instruments valued using quoted prices for similar instruments in markets that are considered less than active, or other valuation techniques where all significant inputs are directly or indirectly observable from market data.
Valuation techniques used for non-standardised financial instruments such as options, currency swaps and other over-the-counter derivatives include the use of comparable recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity specific inputs.
As at the year end, the CFDs were valued using the underlying equity bid price and the inputs to the valuation were the exchange rates used to convert the CFD valuation from the relevant local currency in which the underlying equity was priced to US Dollars at the year-end date. There have been no changes to the valuation technique since the previous year or as at the date of this report.
Contracts for difference and forward currency contracts have all been classified as Level 2 investments as their valuation has been based on market observable inputs represented by the market prices of the underlying quoted securities and exchange rates to which these contracts expose the Company.
Level 3 – Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes inputs not based on market data and these inputs could have a significant impact on the instrument’s valuation.
This category also includes instruments that are valued based on quoted prices for similar instruments where significant entity determined adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active market. The Investment Manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability including an assessment of the relevant risks including but not limited to credit risk, market risk, liquidity risk, business risk and sustainability risk. The determination of what constitutes ‘observable’ inputs requires significant judgement by the Investment Manager and these risks are adequately captured in the assumptions and inputs used in measurement of Level 3 assets or liabilities.
Fair values of financial assets and financial liabilities
For exchange listed equity investments, the quoted price is the bid price. Substantially, all investments are valued based on unadjusted quoted market prices. Where such quoted prices are readily available in an active market, such prices are not required to be assessed or adjusted for any business risks, including climate risk, in accordance with the fair value related requirements of the Company’s financial reporting framework.
The table below sets out fair value measurements using IFRS 13 fair value hierarchy.
| Financial assets/(liabilities) at fair value through profit or loss | Level 1 | Level 2 | Level 3 | Total |
| Assets: |
|
|
|
|
| Equity investments | 343,749 | – | – | 343,749 |
| Cash Fund | 68,559 | – | – | 68,559 |
| Contracts for difference (fair value) | – | 2,756 | – | 2,756 |
| Liabilities: |
|
|
|
|
| Contracts for difference (fair value) | – | (1,561) | – | (1,561) |
|
| --------------- | --------------- | --------------- | --------------- |
|
| 412,308 | 1,195 | – | 413,503 |
|
| ========= | ========= | ========= | ========= |
| Financial assets/(liabilities) at fair value through profit or loss | Level 1 | Level 2 | Level 3 | Total |
| Assets: |
|
|
|
|
| Equity investments | 309,642 | – | – | 309,642 |
| Cash Fund | 64,875 | – | – | 64,875 |
| Contracts for difference (fair value) | – | 1,402 | – | 1,402 |
| Liabilities: |
|
|
|
|
| Contracts for difference (fair value) | – | (3,234) | – | (3,234) |
|
| --------------- | --------------- | --------------- | --------------- |
|
| 374,517 | (1,832) | – | 372,685 |
|
| ========= | ========= | ========= | ========= |
There were no transfers between levels of financial assets and financial liabilities during the year ended 30 September 2024.
The Company held no Level 3 assets or liabilities during the year ended 30 September 2024 (2023: nil).
11. Related party disclosure
Directors’ emoluments
At the date of this report, the Board consists of five non-executive Directors, all of whom are considered to be independent of the Manager by the Board.
Disclosures of the Directors’ interests in the ordinary shares of the Company and fees and expenses payable to the Directors are set out in the Directors’ Remuneration Report in the Company’s Annual Report for the year ended 30 September 2024. At 30 September 2024, US$20,000 (£15,000) (2023: US$20,000 (£17,000)) was outstanding in respect of Directors’ fees.
Significant holdings
The following investors are:
a. funds managed by the BlackRock Group or are affiliates of BlackRock Inc. (Related BlackRock Funds); or
b. investors (other than those listed in (a) above) who held more than 20% of the voting shares in issue in the Company and are as a result, considered to be related parties to the Company (Significant Investors).
As at 30 September 2024
|
|
| Total % of shares held by | Number of |
| As at 30 September 2024 | 4.0 | n/a | n/a |
| As at 30 September 2023 | 4.1 | n/a | n/a |
|
| ========= | ========= | ========= |
12. Transactions with the Investment Manager and AIFM
BlackRock Fund Managers Limited (BFM) provides management and administration services to the Company under a contract which is terminable on six months’ notice. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Further details of the investment management contract are disclosed in the Directors’ Report in the Company’s Annual Report for the year ended 30 September 2024.
The investment management fee due for the year ended 30 September 2024 amounted to US$4,204,000 (2023: US$3,783,000). The performance fee payable for the year ended 30 September 2024 amounted to US$3,510,000 (2023: US$8,272,000).
At the year end, US$3,204,000 (2023: US$2,902,000) was outstanding in respect of management fees and US$3,510,000 (2023: US$8,272,000) was outstanding in respect of performance fees.
In addition to the above services, BIM (UK) has provided the Company with marketing services. The total fees paid or payable for these services for the year ended 30 September 2024 amounted to US$211,000 (2023: US$90,000) excluding VAT. Marketing fees of US$344,000 (US$143,000) excluding VAT were outstanding at the year end.
The Company has an investment in the BlackRock Institutional Cash Series plc – US Dollar Liquid Environmentally Aware Fund of US$68,559,000 (2023: US$64,875,000) at the year end, which is a fund managed by a company within the BlackRock Group. The Company’s investment in the Cash Fund is held in a share class on which no management fees are paid to BlackRock to avoid double dipping.
The ultimate holding company of the Manager and the Investment Manager is BlackRock, Inc., a company incorporated in Delaware, USA.
13. Contingent liabilities
There were no contingent liabilities at 30 September 2024 (2023: nil).
14. PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information contained in this announcement does not constitute statutory accounts as defined in the Companies Act 2006. The 2024 Annual Report and Financial Statements will be filed with the Registrar of Companies shortly.
The report of the Auditor for the year ended 30 September 2024 contains no qualification or statement under Section 498(2) or (3) of the Companies Act 2006.
The comparative figures are extracts from the audited financial statements of BlackRock Frontiers Investment Trust plc for the year ended 30 September 2023, which have been filed with the Registrar of Companies. The report of the Auditor on those financial statements contained no qualification or statement under Section 498 of the Companies Act.
This announcement was approved by the Board of Directors on 4 December 2024.
15. ANNUAL REPORT
Copies of the annual report will be sent to members shortly and will be available from the registered office, c/o The Company Secretary, BlackRock Frontiers Investment Trust plc, 12 Throgmorton Avenue, London EC2N 2DL.
16. ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held at 12 Throgmorton Avenue, London EC2N 2DL on Wednesday, 5 February 2025 at 12:30 p.m.
The Annual Report will also be available on the BlackRock website at blackrock.com/uk/brfi. Neither the contents of the Manager’s website nor the contents of any website accessible from hyperlinks on the Manager’s website (or any other website) is incorporated into, or forms part of, this announcement.
FOR FURTHER INFORMATION, PLEASE CONTACT:
Sarah Beynsberger, Director, Investment Trusts, BlackRock Investment Management (UK) Limited
Tel: 020 7743 3000
Press enquiries:
Lansons Communications
Email: BlackRockInvestmentTrusts@lansons.com
Tel: 020 7490 8828
4 December 2024
12 Throgmorton Avenue
London EC2N 2DL
END
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