Outperforming handsomely over five years: Blackrock Frontiers

BlackRock Frontiers (BRFI) has delivered striking outperformance of a more mainstream emerging markets product over the past five years, its portfolio of stocks from the smaller emerging markets and from frontier markets delivering c. 94% in NAV terms as of 23/01/2025, while the MSCI Emerging Markets Index has delivered a disappointing 23% (see Performance).

The trust invests in a unique universe that cuts out the largest emerging markets and focusses on the opportunities in some of the fastest-growing economies in the world, economies that are almost entirely absent from the mainstream indices and funds that most investors use. These countries are typically self-help stories, being driven by internal dynamics and funding, which means their returns have a low correlation to global indices and to each other.

Over 2024, managers Sam Vecht and Emily Fletcher built up positions in some of the smaller countries in their universe, which they had had little exposure to for some time (see Portfolio). As the cyclical economic outlook in these countries had improved, with support from more orthodox monetary and fiscal policies, they saw the prospect for excellent returns from deeply discounted levels. Over 2025, BRFI benefitted from some of these positions as the thesis played out, most notably Pakistan, where a stock they bought on a P/E of 3 times made 167% in the 12 months to 30/09/2025. The deep value the managers continue to find in their universe supports a healthy Dividend yield.

BRFI’s board offers a five year liquidity opportunity, which means a 100% tender offer will be held in Q1 2026. This feature, expected to be offered every five years, at the discretion of the board, means that investors can have confidence they won’t be trapped in a vehicle on a wide discount. The Discount has narrowed as this tender draws near, as it did last time, before widening in the aftermath.

BRFI continues to stand out in the investment trust sector for the clarity of its unique investment proposition and its competent execution. Sam and Emily have a well-resourced and systematic approach to investing in a remarkably broad and diverse set of countries, which has allowed them to shift between them as the economic and political cycles turn, adding considerable alpha to their own benchmark and outstripping returns to mainstream emerging market funds. The success seen with the Pakistani and Kenyan holdings over 2025 is an extreme example of the strategy working as intended, harnessing endogenous political and economic factors as they coincide to deliver powerful returns from cheap and overlooked stocks. The 100% tender offer is another distinguishing feature that shows real commitment by the board to shareholder value.

We think it likely the discount will widen after the tender is held, as it did last time, but we note that the average emerging market trust is trading closer to par than it was in 2021, and in that year BRFI’s discount only widened out to the sector average. We would add that any short term gain to be made from playing the discount or waiting for it to widen is likely to pale into insignificance compared to the potential annual NAV gains, while any discount is likely to narrow when the next five year period ends.