Are investors overlooking undervalued frontier markets?

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

For investors who enjoy doing the work - tracking markets, reading the footnotes, cross‑checking management claims, frontier markets offer something that’s increasingly hard to find in mainstream indices: inefficiency. Frontier markets remain largely overlooked by mainstream investors and underrepresented in global indices, which means fewer analysts, less institutional coverage, and limited price discovery. For active managers, this creates a rare opportunity: a landscape where inefficiencies persist and fundamental research can make a meaningful difference.

While most emerging market managers concentrate their portfolios in the eight largest emerging markets (Brazil, China, India, South Korea, Mexico, Russia, South Africa and Taiwan.) in the MSCI Emerging Markets Index,¹ BlackRock Frontier Investment Trust (BRFI) takes a different approach - focusing on the overlooked opportunities in smaller, underrepresented markets where institutional coverage is limited and inefficiencies persist. In our view, these economies (think Kenya, Saudi Arabia, Chile, or Vietnam) share enduring traits—younger populations, faster growth, improving governance and rising consumer demand, but they also move to local rhythms that global benchmarks barely capture.

The appeal of frontier markets

Frontier markets can offer opportunities during periods of economic acceleration. In several countries, improving macro fundamentals, such as decreasing inflation rate,² room for rate cuts, and healthier external balances, can contribute to a more constructive backdrop for well-managed companies. The BRFI team conducts on the ground research in these markets to identify signs such as cyclical recovery and increased business confidence, supported by more consistent policy execution and a growing pipeline of private investment. These conditions reflect early-cycle dynamics, where dispersion across markets can create a broader set of opportunities for active managers to identify and capture value.

For experienced investors refining their portfolios, BRFI introduces distinct return engines not dominated by global mega-caps, spreading risk across idiosyncratic countries and sectors.

Why should I look to invest in these markets now?

Frontier and smaller emerging economies often exhibit distinct economic cycles, shaped by domestic policy shifts, liquidity conditions, and evolving demand patterns. These cycles can create windows of opportunity for active investors, particularly when macro fundamentals change. While timing and conditions vary across countries, the ability to identify and respond to these turning points is central to BRFI’s investment process, which is built to navigate dispersion and uncover value across a diverse set of underrepresented markets, where valuations might not always have caught up. At the universe level, the frontier's benchmark (MSCI Frontier + Emerging ex Selected Countries Index) traded at a c. –40.9% P/E³ discount to MSCI ACWI as of 31 July 2025, offering a compelling starting point for investors seeking attractively valued exposure to faster-growing economies.

As global investors rebalance away from a handful of dominant US growth names, capital is searching for diversified sources of return. Frontier economies, often maintaining relationships with both East and West, are positioned to benefit in a polarized world, including via supply‑chain diversification and shifts in trade routes. For hands-on investors who like to be close to the action, BRFI’s local networks and repeatable process aim to identify the local winners before they are widely owned.

Harnessing diversification: A rare, uncorrelated return stream

Because frontier markets are driven by local policy, credit and consumer cycles, they can be less correlated with one another and with developed markets. Over multi‑year windows, the BRFI universe has displayed lower historical volatility than mainstream Emerging Markets⁴ and weaker correlation to global indices⁵ like S&P 500 Index, MSCI Emerging Markets Index etc. This is useful when familiar, larger markets feel crowded or fully valued. Practically, it means that when one region stumbles, another may be mid‑recovery, giving the portfolio more places to find resilience without relying on the same global drivers that dominate the news flow.

The BRFI approach

BRFI is built from the bottom up. Ideas start with the company, with the managers using a macro‑anchored country framework to focus research time where they believe the underlying economic conditions for the country is turning, then do the hard yards on the ground. BRFI’s portfolio managers meet not only management, but also competitors, suppliers and regulators to triangulate findings. Positions are sized by conviction, valuation, liquidity and correlation, offering diversity in selection and allocation. The result is a high-conviction portfolio built from the bottom up with deliberate sizing, and designed to capture differentiated opportunities across a diverse and under-covered investment universe.

Frontier markets are often marked by thinner liquidity, currency swings, and political shifts. But these challenges vary widely across countries and tend to become insurmountable at the portfolio level. What sets these markets apart is their reliance on domestic dynamics and tend to drive performance more than global trends. This divergence creates a landscape where country-level returns can move independently, offering a natural layer of diversification. BRFI’s global mandate allows its managers to pivot capital toward regions showing strength, continuously uncovering new opportunities and balancing risk across the portfolio.

BRFI focuses on selective stock picking, backed by deep on-the-ground research and local intelligence. By blending a range of uncorrelated frontier economies, the Trust aims to build a portfolio designed to remain balanced across varying market conditions and capture growth where it emerges. Historically, this universe has shown lower volatility than mainstream emerging markets and weaker correlation to global benchmarks, offering an advantage when traditional markets feel saturated or overvalued.

† Morningstar IT Global Emerging Markets
‡ MSCI Frontier + Emerging Markets ex Selected Countries Index
The figures shown relate to past performance. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Index performance returns do not reflect any management fees, transaction costs or expenses. Indices are unmanaged and one cannot invest directly in an index.

Frontier markets can also be an appealing source of natural income. Many well‑governed businesses here generate robust free cash flow and emphasize shareholder returns. BRFI’s current yield was ~4.7% as at 31 December 2024 (gross) offering a comforting ballast during volatility and contributing to total return alongside capital growth.

Differentiated alpha for experienced investors

Despite their promise, frontier markets remain underrepresented in global indices and are often absent from mainstream global funds. These markets are often undervalued, under-researched, and under-owned, creating fertile ground for active managers to uncover mispriced assets and unlock long-term value through rigorous stock selection and local insight.

BRFI’s approach is built around identifying where economic conditions are turning and deploying capital selectively. The Trust’s bottom-up process, supported by local research and macro awareness, allows it to build a high-conviction portfolio that reflects opportunities across a diverse set of frontier economies.

As economies grow and formalize, investor interest tends to follow—and valuations typically re-rate in response. early cycle growth, steep discounts, and structural diversification, is a compelling combination for investors who like to be close to where the action is, while still benefitting from institutional grade risk controls.

BRFI is designed to operate in this overlooked space with a disciplined investment framework. The team’s long-term approach seeks to identify turning points early, before broader investor flows catch on, and deploy capital patiently into businesses with growth potential.

Unlike many investors who typically concentrate on a single market, BRFI’s managers navigate a global frontier universe. This broader lens could enable them to recognize recurring patterns, assess policy responses across geographies, and reallocate capital toward improving risk-reward profiles. It’s a dynamic approach that could turn global dispersion into opportunity.

The Trust’s closed-ended structure⁶ adds further flexibility. Freed from daily liquidity constraints, managers can take a genuinely long-term view and apply using a small, controlled amount of borrowed money to invest (modest gearing)⁷, to capture high-conviction ideas. Independent risk oversight seeks to ensure exposures are intentional and well-managed, which could allow BRFI to pursue differentiated alpha⁸ while maintaining discipline.

In short: this is a way to seek premium long-term growth ahead of the crowd, on sensible entry multiples, with a natural yield that can support total return.

Summary

Frontier markets can offer a sweet spot of cyclical growth, many economies are stabilizing politically and improving macro fundamentals, which is supplemented by BRFI’s on the ground work, translating into conviction. These markets remain overlooked and under researched, creating mispricings that disciplined, bottom-up stock picking⁹ can exploit; at the portfolio level, low cross country correlation adds genuine diversification. Alongside capital growth potential, a natural income stream helps cushion volatility. For hands-on investors who like to dig into fundamentals, BRFI provides access to opportunities that are often overlooked by mainstream opportunities.

¹ The 8 largest markets in MSCI Emerging markets Index make up about 82% of the entire index (Brazil, China, India, South Korea, Mexico, Russia, South Africa and Taiwan).). Frontiers markets constitute a very small portion of this index. EM managers would primarily use MSCI EM as their benchmark, and hence have their portfolios concentrated in the largest 7 markets in the MSCI EM index.
² Inflation rate refers to the rate at which prices increase over time, resulting in a fall in the purchasing value of money. A decreasing inflation rate would imply that purchasing power of money is increasing, hence providing room for interest rate cuts to boost the economy.
³ The price–earnings ratio, also known as P/E ratio (Price-to-Earnings), P/E, is the ratio of a company's share price to the company's earnings per share. The ratio is used for valuing companies and to find out whether they are overvalued or undervalued. P/E (Price-to-Earnings) discount occurs when a company's Price-to-Earnings (P/E) ratio is lower than a relevant benchmark, such as the average P/E of its industry peers or the broader market. Essentially, it suggests that the market is valuing the company's earnings at a lower multiple compared to similar companies or the market overall.
⁴ Mainstream emerging markets refer to the ones transitioning from developing to developed status, factually characterized (by MSCI) by rapid economic growth, industrialization, and an increasing integration with the global economy. Countries like China, India, and Brazil are well-known examples of leading emerging markets. Please refer to MSCI EM classification on MSCI’s website: msci.com/documents/10199/c0db0a48-01f2-4ba9-ad01-226fd5678111
⁵ Global indices are benchmarks that track the performance of financial markets across different countries or regions around the world. Think of them as report cards for various segments of the global economy. Instead of tracking just one country's stock market (like the S&P 500 for the US or the FTSE 100 for the UK), global indices give you a snapshot of how investments are performing in multiple countries or worldwide.
⁶ A closed-ended structure is an investment fund that issues a fixed number of shares through a single offering, typically an Initial Public Offering (IPO). After this one-time issuance, the fund "closes" to new capital, and its shares trade on a stock exchange just like the stocks of a publicly traded company.
⁷ Gearing - the ratio of a company's loan capital (debt) to the value of its ordinary shares (equity) also known as leverage.
⁸ Alpha is a measure of an investment's performance against a benchmark index, representing the excess return or "outperformance" generated by a fund manager.
⁹ Bottom-up stock selection is an investment strategy that focuses on analyzing individual companies to find strong, fundamentally sound businesses, rather than concentrating on broad market or economic trends.

Risk Warnings

Investors should refer to the prospectus or offering documentation for the funds full list of risks.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund, and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time and depend on personal individual circumstances.

Description of Fund Risks

Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss.

Currency Risk: The Fund invests in other currencies. Changes in exchange rates will therefore affect the value of the investment.

Emerging Markets: Emerging markets are generally more sensitive to economic and political conditions than developed markets. Other factors include greater 'Liquidity Risk', restrictions on investment or transfer of assets and failed/delayed delivery of securities or payments to the Fund.

Frontier Markets: Frontier markets are generally more sensitive to economic and political conditions than developed and emerging markets. Other factors include greater 'Liquidity Risk', restrictions on investment or transfer of assets and failed/delayed delivery of securities or payments to the Fund. There may be larger fluctuations to the value of your investment and increased risk of losing your capital.

Gearing Risk: Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.

There is no guarantee that research capabilities will contribute to a positive investment outcome.