BLACKROCK FRONTIERS INVESTMENT TRUST PLC: Portfolio Update
BLACKROCK FRONTIERS INVESTMENT TRUST PLC
All information is at 31 December 2012 and unaudited.
Performance at month end with net income reinvested
One Three Six One Since
month months months year launch* Sterling: Share price 1.4% 2.2% 12.4% 15.8% -14.6% Net asset value 2.2% 4.7% 14.2% 15.3% -7.4% MSCI Frontiers Index (NR) 0.6% 2.4% 6.8% 4.1% -13.7% MSCI EM Markets (NR) 3.4% 4.9% 9.8% 13.0% -4.1% US Dollars: Net asset value 3.7% 5.4% 18.4% 20.6% -3.4% MSCI Frontiers Index (NR) 2.1% 3.1% 10.7% 8.9% -10.0% MSCI EM Markets (NR) 4.9% 5.6% 13.8% 18.2% -0.1%
Sources: BlackRock and Standard & Poor's Micropal
* 17 December 2010.
At month end US Dollar: Net asset value - capital only: 139.84c Net asset value - cum income: 142.69c Sterling: Net asset value - capital only: 86.03p Net asset value - cum income: 87.78p Share price: 82.50p Total assets (including income): £83.2m Discount to cum income NAV: 6.0% Gearing: nil Net yield: 3.2% Ordinary shares in issue: 94,766,267
Benchmark Sector Analysis Gross assets(%)* Country Analysis Gross assets(%)*
Financials 29.6 Nigeria 15.7 Consumer Staples 16.4 United Arab Emirates 11.1 Industrials 13.9 Qatar 10.5 Telecommunication 12.4 Saudi Arabia 9.7 Energy 10.4 Kazakhstan 9.0 Consumer Discretionary 6.4 Vietnam 5.4 Healthcare 5.8 Ukraine 5.4 Materials 5.1 Panama 4.6 Utilities 2.8 Bangladesh 4.3 Technology 0.6 Argentina 3.9
----- Iraq 3.7 Total 103.4 Croatia 2.7
----- Pan Africa 2.5 Short positions -5.2 Algeria 2.5
===== Kuwait 2.4 Cambodia 2.3 Kenya 2.2 Romania 1.7 Cameroon 1.5 Sri Lanka 1.0 Lebanon 0.9 Slovenia 0.4 ----- 103.4 ===== Short positions -5.2 ===== *reflects gross market exposure from contracts for difference (CFDs) Market Exposure 29.02 31.03 30.04 31.05 30.06 31.07 31.08 30.09 31.10 30.11 31.12 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 % % % % % % % % % % % Long 103.9 98.3 100.8 99.2 97.2 101.9 96.5 99.1 101.0 102.0 103.4 Short 5.2 3.0 2.1 0.0 2.6 2.6 2.5 2.6 4.2 4.9 5.2 Gross 109.1 101.3 102.9 99.2 99.8 104.5 99.0 101.7 105.2 106.9 108.6 Net 98.7 95.3 98.7 99.2 94.6 99.3 94.0 96.5 96.8 97.1 98.2
Ten Largest Equity Investments (in alphabetical order)
Company Country of Risk
Air Arabia United Arab Emirates FBN Holdings Nigeria First Gulf Bank United Arab Emirates Halyk Savings Bank Kazakhstan Hrvatski Telekomunikacije Croatia Kazmunaigas Exploration Kazakhstan MHP Ukraine NMC Health United Arab Emirates Qatar Electricity & Water Qatar Zenith Bank Nigeria
Commenting on the markets, Sam Vecht, representing the Investment Manager noted:
The MSCI Frontier Markets Index continued its rally into the year end, rising 2.1% and bringing returns for 2012 to 8.9% (on a US dollar basis with net income reinvested). The rally in Frontier Markets echoed the movements seen across Global Equity markets. Performance was driven by strong inflows into equities as the valuation differential between equities and bonds reached a compelling level.
Argentina was the best performing market in December, rising by 19%. Following an earlier US court decision which required the government to pay "holdout" creditors, Argentina was able to win a stay on the ruling and so avert immediate default. The stock market rallied from very low levels as panic amongst investors subsided somewhat. State-controlled energy company, YPF, was the best performing large cap stock, up by 28% as it announced partnerships with Bridas and Chevron to develop its shale assets.
Vietnam was a strong performer over the month, rising by 12%. During 2012 the Vietnamese trade account swung to a surplus for the first time since 1992, as weak domestic demand curtailed imports and the ramp up of foreign owned production within Vietnam drove a robust increase in exports. Whilst significant economic problems remain, especially within the banking system, the government has taken credible steps to address the issues and the rally in the equity market, from a very low level, reflected this.
Nigeria continued to perform well in December, up by 9%. Although the Nigerian equity market has rallied strongly in 2012, valuations continue to look attractive within the context of Emerging Markets. The inclusion of Nigerian sovereign debt within the JP Morgan Emerging Market Bond Index has brought the country to the attention of a wider investor base. Since then, bond yields have fallen by around 4% and had a knock on effect on the cost of equity and hence driving up theoretical stock market valuations.
Kuwait underperformed as the country's political stasis showed no sign of abating, with opposition parties boycotting elections to the National Assembly. The low turnout undermines the legitimacy of the recently elected parliament and there is little sign that new legislation and reforms to improve infrastructure can be enacted soon.
In December, the BlackRock Frontiers Investment Trust's NAV returned 3.7%, outperforming the index by 1.6%. This brought the curtain down on a year in which the Company returned 20.6% and outperformed the index by 11.7% (all percentages in US dollar terms with net income reinvested).
Performance over the month was driven by stock selection. The largest individual contributor to performance was Romanian Media company, Central European Media, which rose over 30% in December as risk appetite increased and investors began to countenance a potential economic improvement across Europe in 2013.
UAE Healthcare provider, NMC Health performed strongly in December, rising by 12%, after the company announced that construction work had begun on a new facility in the Khalifa district of Abu Dhabi. The hospital is due to be opened in 2014.
The Company also benefitted from holdings in Argentina, including energy company YPF and financial Grupo Galicia.
Detracting from performance over the month was the position in the Iraqi Energy name, Gulf Keystone, as tensions increased between the Kurdistan Regional Government and Baghdad and put into doubt the continuation of oil exports from the north of the country. Despite this, exports have continued, paving the way for much larger quantities to be exported over the coming months.
Over the course of 2012, the Company generated significant performance across all regions with Nigeria, Iraq, Panama and Bangladesh being standout markets. Individual stock contributions were driven by Nigerian financials, which rallied from oversold positions as balance sheet stability was restored to the sector. Panamanian airline Copa Holdings was up by 78% over the year as the company continued to report impressive results from its expanding South American network and Kazakhstan financial, Halyk Bank, rose by 69% as trends in non-performing loans reached an inflection point and the bank started to report improved numbers.
At the end of December, the Company held 55 long positions and 4 short positions across 25 countries. We would aim to reduce the number of positions held over the next few months.
The Company opened new positions in Bangladesh health care company, Square Pharmaceuticals, the leading manufacturer of generic drugs in Bangladesh. Against this, the Team sold the position in the Bangladeshi Telecom Company, Grameenphone. At an operating level, the company remains in good health. However, increased competition means that earnings are likely to come under pressure as it is forced to invest in price to maintain market share.
2012 was a year of contrasts as investors swung from extremes of optimism and pessimism about the state of world economic health. Whilst the global economy continues to oscillate around zero growth, the swing factor between data points which are either slightly positive or negative is vastly larger than the data points themselves, hence creating the culture of extreme mood swings that we have seen. In the second half of 2012, we did see a note-worthy recovery in European financials, which have risen nearly 50% in US dollar terms from their July lows suggests a further normalization in European financial risk. The last few months of the year saw the start of a shift from bonds to equities as the extreme low levels of returns offered in the bond market compelled investors to overcome their fears and increase exposure to the equity markets.
We would expect this reversal of trend to continue in 2013 as investors search for better returns on their savings. We continue to highlight frontier markets, one of the few remaining asset classes which offer investors diversification. With dedicated Frontier market funds totaling just $10bn currently, we expect strong performance in 2013 as funds flow into these markets.
Given the fast growth, dynamic demographic profile, improving corporate governance, low levels of indebtedness, cheap valuations and high dividend yields, we believe that Frontier Markets represent a compelling opportunity for long-term investors. History shows that buying inexpensive equities in fast growing countries, with undervalued currencies, is a sensible strategy for capital appreciation.
16 January 2013
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- Jan/16/2013 16:07 GMT