BlackRock Frontiers (BRFI) offers access to the fast-growing, least developed markets in the world to which most investors have little or no exposure. BRFI aims to identify those companies which can benefit from faster GDP growth than developed markets and deliver long-term capital returns. Thanks to the nature of the market and healthy earnings growth in the portfolio companies, the trust is yielding a healthy 4.5%, despite the focus on capital growth. We consider the yield and dividend cover further in the Dividend section.
Managers Sam Vecht and Emily Fletcher use a mixture of both top-down macroeconomic analysis and bottom-up fundamental stock research to build their portfolio, and they estimate that over the long term around 50% of the alpha they have generated has come from each. The process is highly flexible, with the managers able to short stocks and use cheaper derivative contracts rather than buying the cash equities themselves (useful in markets which have lower liquidity than the more developed ones).
In themselves, the markets BRFI invests in tend to display relatively low correlation to developed and emerging market indices. Given the diversification that the managers are able to achieve, the trust has tended to display relatively low volatility in the past, which may be surprising given that less developed markets are regarded as riskier.
The trust has tended to trade on a premium in recent years, but is currently trading at par.