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BlackRock Frontiers (BRFI)

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Friday 21 April, 2017

BlackRock Frontiers

Portfolio Update


All information is at 31 March 2017 and unaudited.

Performance at month end with net income reinvested.

Share price 1.2 15.6 43.8 39.7 108.4 79.4
Net asset value 3.3 10.7 38.0 43.2 99.8 79.0
MSCI Frontiers Index (NR) 2.0 7.6 29.7 26.8 69.6 44.3
MSCI Emerging Markets Index (NR) 2.0 10.1 34.7 38.1 33.0 25.2
US Dollars:
Share price 1.7 17.0 25.0 4.9 63.3 44.4
Net asset value 3.8 12.0 20.0 7.5 56.6 43.8
MSCI Frontiers Index (NR) 2.5 8.9 12.9 -4.9 32.7 15.7
MSCI Emerging Markets Index (NR) 2.5 11.4 17.2 3.6 4.1 0.4

Sources: BlackRock and Standard & Poor’s Micropal

* 17 December 2010.

At month end
Ordinary Shares
US Dollar
Net asset value - capital only: 177.71c
Net asset value - cum income: 180.29c
Net asset value - capital only: 142.11p
Net asset value - cum income: 144.18p
Share price: 147.00p
Total assets (including income): £245.7m
Premium to cum-income NAV: 2.0%
Gearing: Nil
Gearing range (as a % of gross assets): 0-20%
Net yield*: 3.6%
Ordinary shares in issue: 170,383,108
Ongoing charges**: 1.4%
Ongoing charges plus taxation and performance fee: 2.4%

*The Company’s yield based on dividends announced in the last 12 months as at the date of the release of this announcement is 3.6% and includes the 2016 final dividend of 4.00 cents per share declared on 22 November 2016 and paid to shareholders on 17 February 2017 and the 2016 interim dividend of 2.60 cents per share announced on 16 May 2016 and paid to shareholders on 1 July 2016.

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

Sector Analysis Gross assets(%)* Country Analysis Gross assets(%)*
Financials 35.8 Argentina 16.2
Consumer Staples 17.7 Kuwait 10.7
Telecommunication Services 12.2 Romania 9.7
Materials 9.3 Pakistan 9.2
Energy 8.7 Vietnam 8.5
Health Care 8.0 Bangladesh 8.1
Utilities 6.6 Kazakhstan 8.1
Information Technology 5.9 Sri Lanka 6.1
Industrials 4.2 Ukraine 6.0
Real Estate 2.3 Kenya 5.7
Consumer Discretionary 1.4 Egypt 4.4
            ----- Morocco 4.2
Total 112.1 Nigeria 3.1
----- Saudi Arabia 3.0
Short positions 0.0 Philippines 2.3
===== Estonia 1.9
Colombia 1.7
Eurasia 1.6
Slovenia 1.6
Total 112.1
Short positions 0.0

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

Market Exposure

Long 109.2 108.8 110.5 103.4 105.7 104.0 106.4 102.3 108.4 115.0 115.8 112.1
Short  1.3  0.0  0.0  0.0  0.0  0.0  0.0  0.0  0.0  0.0  0.0  0.0
Gross 110.5 108.8 110.5 103.4 105.7 104.0 106.4 102.3 108.4 115.0 115.8 112.1
Net 107.9 108.8 110.5 103.4 105.7 104.0 106.4 102.3 108.4 115.0 115.8 112.1

Ten Largest Equity Investments

Company Country of Risk % of gross assets
MCB Bank Pakistan 4.4
Halyk Savings Bank Kazakhstan 3.9
Pampa Energia Argentina 3.9
Mobile Telecommunications Kuwait 3.8
Equity Group Kenya 3.7
Square Pharmaceuticals Bangladesh 3.3
Banco Macro Argentina 3.3
S.N.G.N. Romgaz Romania 3.3
MHP Ukraine 3.1
Maroc Telecom Morocco 3.0

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

In March, the Company’s NAV rose by 3.8% (including a provision for capital gains tax in Argentina), whilst the Company’s benchmark, the MSCI Frontier Index, rose by 2.5% (on a US Dollar basis with net income reinvested). On a 12-month basis, the Company outperformed the benchmark by 7.1%, returning 20.0% against the benchmark’s 12.9%. The MSCI Emerging Markets Index rose by 2.5% and by 17.2%, over the same periods. With effect from 30 March 2017, the Company’s Net Asset Value (NAV), includes a provision for capital gains tax potentially payable in Argentina. As at 30 March 2017 this provision was 1.4% of the NAV (0.94% on unrealised gains and 0.46% on realised gains since 23 September 2013). There is considerable uncertainty as to whether the capital gains tax will become payable and there is currently no established mechanism for paying it. In the event that no tax becomes payable the provision will be reversed.

Argentina was again the best performing Frontier Market: the MSCI Argentina Index rose by 13% over the month to take the year to date performance to +35%. Recently published GDP data showed that the Argentine economy grew at 0.5% quarter-on-quarter in the fourth quarter of 2016, exiting recession. Economists forecast activity to continue to improve through 2017 and this together with global appetite for high carry assets has led to significant compression of Argentine yields in 2017 and driven the equity market to new highs. The Company benefited from holdings in Pampa Energia, Grupo Financiero Galicia and Transportadora de gas del sur, all of which rose by more than 18% in March. 

Equity Bank in Kenya also showed notable performance, rising by 25% during the month. Kenyan banking stocks fell sharply following the introduction of the interest rate cap at the end of Q3 2016 and Equity Bank was trading around its lowest ever price to book ratio at the start of 2016. The stock rallied by more than 25% during March after announcing better than expected results. Investors also became increasingly confident that the interest rate cap will be removed this year. 

Positioning in Ukraine contributed as well with MHP, an agro-industrial company focusing on the production of poultry and cultivation of grain, rising by 12% as it reported a solid end to 2016 driven by strong poultry export volumes.

Halyk bank, the leading retail bank in Kazakhstan, rose by 13% over the month after posting good results. The stock performance was further driven by the government’s announcement to inject 2 trillion Tenge ($6.2 billion) into its Problem Loans Fund fuelling hope of a balance sheet clean up at Kazkommertsbank happening prior to a potential takeover by Halyk Bank.

Pakistan was a notable underperformer during the month. The index fell by 2%. Having performed strongly over the last few years, valuations are looking less attractive, whilst the deterioration of fiscal and external balances creates the risk of pressure on the currency. We maintain selective exposure there.

At the beginning of the month we increased our exposure to Kenya and trimmed Argentine exposure, taking profits as the market performed strongly. The Company had its highest ever level of gearing through 1Q with investors benefiting from this as it coincided with a period of very strong performance – the Company is up by 12% YTD.  Following this strong performance, we have reduced the gearing to 12%, which remains a fairly high level in the context of historic gearing levels.

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

21 April 2017


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

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