BlackRock Frontier Markets has announced results for the 12 month period ended 30 September 2024. Over that period, the NAV return was 16.5% (in US dollar terms, or 6.0% in sterling terms) ahead of the 15.7% (+5.3% in £) return posted by the trust’s benchmark index (MSCI World Frontier Markets). The discount widened marginally from 8.5% to 9.5% and so the share price return was 15.8% (+5.4% in £). Since the period end, the trust has outperformed by a further 3.5 percentage points in dollar terms (3.7 percentage points in sterling terms).
The full year dividend has been increased by 18% to 9.5 cents per share.
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 149p for a total cost of £37,000.
Changes to fee structure
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 would require the manager to catch up any cumulative underperformance against the benchmark index since launch before a performance fee can be generated [but returns since launch have been a long way ahead of the benchmark: +132.9% versus 64.4% in dollar terms].
A board review of the company’s investment management and performance fee arrangements, concluded that adjustments should be made made to the fee arrangements. With effect from 1 October 2024, the management fee will be levied on NAV (rather than gross assets, defined as the aggregate net assets of the long equity and CFD portfolios).
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 net assets up to $650m, reducing to 1% per annum on net assets above this amount.
Voting and the AGM
In order to facilitate greater attendance and participation at the AGM, the chairman has 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 [which allows companies to find out who are the real holders of shares held in nominee names]. The board encourages all shareholders to either attend the AGM or exercise their 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 . [We entirely agree with this and are pleased to see the trust using the s793 powers in this way. Ideally, registers would be a lot more transparent (while protecting investors from being spammed by third parties), and platforms should be compelled to offer a straightforward and free method of voting at every meeting.]
Extracts from the manager’s report
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.
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.
BRFI : BlackRock Frontiers extends lead over benchmark
