BLACKROCK FRONTIERS INVESTMENT TRUST PLC: Portfolio Update
BLACKROCK FRONTIERS INVESTMENT TRUST PLC
All information is at 30 November 2012 and unaudited.
Performance at month end with net income reinvested
One Three Six One Since
month months months year launch* Sterling:
Share price 0.2% 5.0% 5.2% 14.7% -15.7% Net asset value 1.1% 4.1% 6.7% 13.1% -9.4% MSCI Frontiers Index (NR) 2.2% 4.2% 3.6% 3.5% -14.2% MSCI EM Markets (NR) 1.8% 5.8% 8.2% 9.3% -7.3%
Net asset value 0.6% 5.0% 11.1% 15.3% -6.8% MSCI Frontiers Index (NR) 1.7% 5.2% 7.9% 5.4% -11.9% MSCI EM Markets (NR) 1.3% 6.7% 12.6% 11.4% -4.7%
Sources: BlackRock and Standard & Poor's Micropal * 17 December 2010.
At month end
US Dollar: Net asset value - capital only: 134.94c Net asset value - cum income: 137.65c
Sterling: Net asset value - capital only: 84.20p Net asset value - cum income: 85.89p Share price: 81.38p Total assets (including income): £81.4m Discount to cum income NAV: 5.3% Gearing: nil Net yield: 3.3% Ordinary shares in issue: 94,766,267
Sector Analysis Gross assets(%)* Country Analysis Gross assets(%)*
Financials 29.0 Nigeria 13.8 Industrials 15.2 United Arab Emirates 12.2 Consumer Staples 14.1 Qatar 11.1 Telecommunication 12.4 Saudi Arabia
9.7 Energy 10.9 Kazakhstan
9.4 Consumer Discretionary 6.7 Vietnam
5.5 Materials 5.2 Ukraine
4.6 Healthcare 5.1 Iraq
4.0 Utilities 2.9 Bangladesh
4.0 Technology 0.5 Panama
3.4 Total 102.0 Kuwait
2.9 Short positions -4.9 Kenya
===== Pan Africa
Short positions -4.9
*reflects gross market exposure from contracts for difference (CFDs)
31.01 29.02 31.03 30.04 31.05 30.06 31.07 31.08 30.09 31.10 30.11
2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012
% % % % % % % % % % %
Long 106.2 103.9 98.3 100.8 99.2 97.2 101.9 96.5 99.1 101.0 102.0 Short 3.1 5.2 3.0 2.1 0.0 2.6 2.6 2.5 2.6 4.2 4.9 Gross 109.3 109.1 101.3 102.9 99.2 99.8 104.5 99.0 101.7 105.2 106.9 Net 103.1 98.7 95.3 98.7 99.2 94.6 99.3 94.0 96.5 96.8 97.1
Ten Largest Equity Investments(in alphabetical order)
Company Country of Risk
Air Arabia United Arab Emirates Al Mouwasat Saudi Arabia First Gulf Bank United Arab Emirates Halyk Savings Bank Kazakhstan Hrvatski Telekomunikacije Croatia Kazmunaigas Exploration Kazakhstan Kuwait Food Kuwait MHP Ukraine Qatar Electricity & Water Qatar Zenith Bank Nigeria
Commenting on the markets, Sam Vecht, representing the Investment Manager noted:
In November, the MSCI Frontiers Index increased by 1.7% (on a US dollar net return basis). During the month, politics in the US and China dominated the headlines. Whilst headlines relating to China were broadly positive in the wake of a smooth leadership transition and increasingly positive economic data releases, the re-election of President Obama and debate surrounding the fiscal cliff weighed on equity markets in the US.
In Frontier Markets, Eastern Europe continued to perform well, reflecting the normalization of financial risk, with Serbia outperforming in November,up by 9.5%. Having struggled following the suspension of an IMF loan of £820m in February, the economy is showing signs of stabilizing on government plans to encourage foreign investment and boost exports.
Argentina was a surprise outperformer rising 5.5% over the month. The government announced that gas prices for newly commissioned fields will be well above the current very low rates, incentivizing companies to invest in the sector. More recently, YPF have also announced they are in talks to partner with both Chevron and Statoil on the development of their massive shale gas reserves.
Kuwait outperformed in November, rising by 6.6%, despite a backdrop of continued political stasis. Parliament was dissolved yet again, triggering fresh elections which were then boycotted by the opposition. The lack of a popular mandate and ongoing protests mean that the election saga, which has hindered attempts to reform the economy, is set to continue.
Ukraine was the worst performing market, falling by 9.4%, over the month as the economy slides into recession, the government budget deficit continues to widen and investors withdrew capital in anticipation that IMF intervention and a currency devaluation will be required.
In November the Company's NAV increased by 0.6%, underperforming the benchmark index by 1.1%. Over the last 12 months the Company has returned 15.3%, significantly outperforming the benchmark return of 5.4% (all calculations on a US dollar basis with net income reinvested, net return).
The largest individual contribution to return in November was Kazakh financial, Halyk Bank. The stock performed well after the bank, Kazakhstan's second-largest lender, reported a 92% increase in 9-month net profit.
Also performing well was Cambodian casino operator, Nagacorp. November saw the start of the Naga2 expansion project, which plans to add two 5-star hotels, a gaming and entertainment complex, shopping boutiques and restaurants to Nagacorp's resort in Phnom Penh to what is already an extremely profitable operation.
Detracting from performance in November was an underweight position in Kuwaiti telecom, Zain which rose slightly following a long period of underperformance. Performance was also impacted by the Company's holding in Kazakh miner, Eurasia Natural Resources Corporation, which fell in November despite measures taken to improve standards of corporate governance.
At the end of November, the Company held 53 long positions and 4 short positions across 26 countries.
The Company initiated a new position in The Lebanese Company for the Development and Reconstruction of Beirut Central District (Solidere). We anticipate that events in Syria might move towards resolution sooner rather than later and would expect Lebanon to benefit from the regional normalization.
The Company also purchased a new position in the Sri Lankan financial, Hatton National Bank. Although this is currently a small position, we would expect to continue to increase our exposure to Sri Lanka over time as we consider the opportunities for development in this market are very exciting.
We reduced exposure to Nigeria. Although we remain excited by the immense long-term potential of Nigeria, valuations look less attractive after a 50% rally year to date.
Global markets post the 2008 global financial crisis, have moved in tandem with policy action by global central banks and in anticipation of cyclical inventory restocking effects. The noteworthy recovery in European financials, which have risen nearly 50% in US$ terms from their July lows suggests a further normalization in European financial risk. In some markets, early cyclical stocks have started to outperform quality stocks, suggesting that investors are gradually shifting their portfolios away from a risk averse stance.
This unwinding of bearish positioning and normalizing European financial risk is likely to drive global equity markets higher. The Company is well positioned in this environment, given its substantial overweight positions in Kazakhstan and Ukraine, where stocks, despite delivering solid operating performance, have been unfairly penalized by negative sentiment pervading Europe. MHP, Ukraine's largest poultry company, has a solid record of capacity expansion and is completely self-sufficient in feed, thus benefitting from rising corn prices. Yet, the stock is valued at a price of less than 5x 2012 earnings.
During the month we visited Nigeria, a trip which confirmed our positive views on the market. We remain optimistic that the current momentum behind reform in the power sector can be sustained and we will continue to hold positions there.
The Company remains optimistic on the outlook for Frontier markets, which stand out for their low valuations and high dividend yields. We hold positions in Frontier economies which we believe will benefit from positive structural reforms, high growth and well-capitalised, liquid banking systems meaning that they are well placed in the current global environment.
18 December 2012
Latest information is available by typing www.blackrock.co.uk/brfi 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 the Manager's website (or any other website) is incorporated into, or forms part of, this announcement.
-0- Dec/18/2012 13:09 GMT