Questor: if you want to venture into investment’s far frontiers, this is the trust to pick

Richard Evans 5 December 2019 • 6:00am

Couple in Similian, Thailand, by beach — Thailand is one of the so-called 'frontier' markets Credit: Oleg Breslavtev/Shutterstock

Questor investment trust bargain: BlackRock Frontiers gives investors access to some of the fast-growing nations that make ‘emerging’ markets look well established by comparison

Questor is no stranger to far-flung countries but we have not so far set foot in the “frontier” markets.

This evocative term conveys the sense that investors who venture to these places will be at the outer limits of where they can safely go. Frontier markets are one step behind emerging markets such as India and China, which themselves have traditionally been seen as only for those comfortable with risk.

Frontier markets include Argentina, the Philippines, Vietnam, Egypt, Thailand and Nigeria.

The attraction of such nations is that, because many investors will not even consider putting money into them thanks to the level of perceived risk, valuations are unlikely to run away with themselves.

Businesses in the frontier markets are the polar opposite of the “momentum” investments that have done so well in recent years, such as American technology stocks.

In fact, the managers of the BlackRock Frontiers investment trust, Questor’s choice for exposure to this area, said in an update to investors in September that frontier market stocks were “trading on some of the lowest valuations in the world”.

The managers, Sam Vecht and Emily Fletcher, added: “A lot of [frontier market] stocks are trading at extreme valuations which we view as an opportunity to invest in a wide subset of countries that exhibit good growth, have low government debt levels, and are home to companies with strong cash flow and high dividend yields.”

The reference to high dividend yields may surprise some readers, who might expect such exotic markets to be all about breakneck but risky growth rather than boring old divis. And indeed the trust says it “does not have a policy of actively targeting income”.

Nonetheless, it yields a very attractive 4.4pc – and this income derives from dividends the trust receives from its holdings and not, as with some trusts, from capital. Dividends are declared in American dollars but paid in sterling unless shareholders request otherwise.

Surprisingly docile

Another surprise is the trust’s volatility – or rather the lack of it. You might expect the share price to be all over the place in view of the riskiness of the underlying assets, which are indeed extremely prone to wild swings, but the portfolio as a whole managed to be less volatile than the FTSE 100, the S&P 500, and the MSCI Emerging Markets index between its listing in 2010 and September last year.

A third source of surprise, for this column at least, is the absence of a discount. Normally, when specialist assets are involved you would expect one – but BlackRock Frontiers frequently trades at a premium. Although the board has the power to buy back shares in an attempt to control any discount, it has actually been doing the opposite and issuing new ones in order to limit the premium. Last night the shares were very close to par value.

Another of the trust’s “shareholder friendly” policies is to give investors the option to sell their stake at close-to-par value every five years. This too will tend to rein in any discount. The next such opportunity will be in 2021.

Analysts at Numis, the stockbroker, said at the time of the release of the trust’s interim report in May: “We rate the management team of BlackRock Frontiers highly, and the fund has a good track record since launch in December 2010.” The managers are backed by the considerable resources of BlackRock, the world’s largest fund manager.

Ongoing charges of 1.42pc a year are high relative to those on more mainstream funds but reasonable in view of the specialist nature of the assets.

BlackRock Frontiers is a well run fund that offers something different and potentially very rewarding, although investors should be aware of the risks inevitably involved when you go so far off the beaten track.

Questor says: buy

Ticker: BRFI

Share price at close: 128p

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