BlackRock Frontiers Investment Trust Plc (BRFI), a $297 million frontier markets equity fund that returned 33 percent in 2013, expects attractive investment opportunities this year including a surge in initial public offerings.
While the performance of frontier markets has been “relatively strong” over the past three years and more, this has mainly been driven by earnings growth rather than an expansion in valuation multiples, investment managers Sam Vecht and Emily Fletcher said in a regulatory filing. Frontier markets are “no more expensive now than they were just over three years ago” and the fund continues to find “attractive” investment opportunities across various countries, they said.
The jump in net asset values in pounds compares with a 19 percent gain in the MSCI Frontiers Index, data compiled by Bloomberg show. The United Arab Emirates, the second-biggest Arab economy, overtook Nigeria as the fund’s biggest investment destination.
Indexes in the U.A.E.’s two main markets of Dubai and Abu Dhabi were among the top three performers last year globally as the country’s real-estate and banking industries recovered. Dubai’s gauge more than doubled as Abu Dhabi’s rose 63 percent. The benchmark index in Saudi Arabia (SASEIDX), the biggest market in the six-nation Gulf Cooperation Council, gained 26 percent.
BlackRock is the world’s biggest asset manager and had $4.2 trillion under management at the end of December. The New York-based company’s fourth-quarter profit increased 22 percent to $841 million as investors put money into funds, boosting client assets and fees for managing them.
Frontier markets are relatively immune to the short-term swings of global financial markets as institutional investors’ holdings there are about $20 billion, compared with approximately $1 trillion in emerging markets, Vecht and Fletcher said.
This year company owners in frontier markets will “take the opportunity to crystallize the value of their holdings by listing their companies on the stock market and we anticipate the start of an initial public offering boom,” they said.
Aldar Properties PJSC (ALDAR) and Emaar Properties PJSC (EMAAR), Abu Dhabi and Dubai’s biggest real-estate companies respectively, were among the fund’s top three holdings. Qatar National Bank SAQ, the Persian Gulf country’s biggest lender, and Qatar Gas Transport Co. were also among its biggest holdings.
“We rotated positions in the U.A.E., reducing Emaar Properties and exiting First Gulf Bank (FGB) and investing this capital into the Abu Dhabi based property company Aldar,” Vecht and Fletcher, based in London, said. The share of financial services stocks in the fund, which also invests in countries including Argentina and Bulgaria, climbed to 34 percent.
“We expect this weighting to fall gradually as we continue to take profits in those,” they said.
The financial services industry’s weighting will decline before June 2014, BlackRock said, as the fund exits positions in such stocks in Qatar and the U.A.E., which will shift to the MSCI Emerging Markets Index at the end of May.
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