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Questor is The Telegraph’s stock-picking column, helping you decode the markets and offering insights on where to invest.
At times of uncertainty, investors typically rush to invest in safe haven assets, a move reflected by the surge in the gold price this year. On the face of it, this makes it an unusual time for Questor to consider investing in BlackRock Frontiers – a £300m investment trust focused on smaller emerging and frontier equity markets.
However, emerging market equities are proving surprisingly resilient to US tariffs, with the MSCI Emerging Markets (EM) Index up 1.6pc so far this year in sterling terms, whereas the MSCI World Index is down 2.2pc. Even the tech-focused Nasdaq has slumped 4.7pc. In part, this is because emerging markets are relatively lowly valued, having been out of favour with global investors for some time.
There are numerous funds investing in emerging markets, but their portfolios are dominated by a handful of Asian countries – notably China, India, Korea and Taiwan. BlackRock Frontiers, however, excludes these countries from its universe, along with Brazil, Mexico and South Africa. In total these seven countries represent 85pc of the MSCI EM Index by value.
This means the trust’s universe is far more diversified, including around 30 countries to which most investors have little or no exposure, even though they represent a substantial part of the world’s population and include some of the fastest-growing economies. Many of these countries are not reliant on exports as a driver of growth, with domestic economic and political developments instead key to market returns.
These smaller nations typically have little analyst coverage and rarely feature in the global media, meaning they are fertile ground for active investors, like Sam Vecht and Emily Fletcher, who manage the trust. The team combines macro views on interest rates, currencies and equity markets, with bottom up stock selection, and a lot of shoe leather is spent travelling around the globe. The aim is to exploit mispriced value, as well as investing in long-term growth opportunities.
Given the size of the universe, the portfolio is relatively focused with only around 50 companies – although no holding exceeds 6pc to limit stock specific risk. By geography, the largest exposures are Saudi Arabia (15.8pc), Indonesia (11.4pc), UAE (10.8pc), Poland (8.4pc), Hungary (6.9pc) and Kazakhstan (6.4pc).
By sector, the largest weighting is to financials (46pc), regarded as an attractive way to benefit from domestic growth. The weighting in technology (7pc) is far lower than the MSCI EM Index (22pc), given stocks such as TSMC and Samsung are excluded from its universe. The trust typically has modest net gearing of around 8pc, although it is currently higher at 14pc.