How Frontier Markets Are Shaping the Next Wave of Global Growth

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.

What is a frontier market & why do they matter?

Frontier markets are economies that are less developed than emerging markets. They are typically smaller, less accessible to international investors, yet offer strong potential for long-term growth. Examples include Kenya, Bangladesh, Kazakhstan, Romania, Nigeria, and Sri Lanka, regions that sit just beyond the well-trodden paths of global investment. In contrast, emerging markets such as Brazil, China, India, South Korea, Mexico, Russia, South Africa and Taiwan. are generally larger and more integrated into the global financial system.

Frontier markets provide access to economies in the early stages of development, often characterised by young populations, rising incomes, and improving infrastructure and governance. These factors can support sustained growth. Because these markets are less connected to global financial systems, their performance tends to move differently from developed and emerging markets. This lower correlation can help diversify portfolios and reduce overall risk.

Importantly, frontier markets can add differentiated return streams and potential income opportunities. Many of these markets host well-managed businesses that combine strong cash generation with a commitment to shareholder returns. For example, the MSCI Frontier Markets Index delivered a total return of 66.0% over the past five years, compared with 29.0% for the MSCI Emerging Markets Index (GBP terms, income reinvested, as of end-July 2025). These figures highlight the potential for attractive returns alongside diversification benefits.

† 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.

Why should I consider investing in frontier markets now?

After a decade of flows into the same global leaders, many portfolios have become narrowly concentrated by geography, sector and style. Frontier and smaller emerging markets have long been overlooked by global investors, creating valuation gaps. BRFI’s investment process, which excludes the eight largest countries in the MSCI Emerging Markets Index – Brazil, China, India, South Korea, Mexico, Russia, South Africa and Taiwan- is designed to identify and actively capture these opportunities, combining deep research, careful stock selection, and a global perspective to capitalise on these anomalies. The returns in these economies are often driven by domestic reforms, local credit cycles and company execution rather than US growth or mega cap tech earnings alone - meaning they can behave differently and could add genuine diversification to a broader equity allocation.

Exploit market inefficiencies

Just as importantly, these frontier and smaller emerging markets offer another key advantage for active investors: whilst governance is improving, there can still be inefficiencies. BRFI seeks to exploit these inefficiencies: its portfolio managers compare trends across countries and sectors, policy cycles, credit turns, supply chain shifts, rather than analysing markets in isolation, redeploying capital where the balance of probabilities is improving. The investment process is purpose built for this terrain: on the ground due diligence, a rigorous country level framework, and a disciplined approach to stock selection aim to identify resilient businesses early as fundamentals improve. This edge has been evident in 2025 (to end July), with strong contributions from smaller markets where exposure has been rising, including Pakistan, Turkey, and Bangladesh (Source: BlackRock, as at end July 2025).

Changing global landscape

Meanwhile, global geopolitical tension is another structural trend that can benefit some of these markets. As supply chains are re-diversified and companies move production closer to end consumer markets through re-shoring and near-shoring¹, capital and trade are rerouting - not away from globalisation, but toward a different flavour of it. Within BRFI’s universe, that is creating local champions in markets where policy, demographics and investment cycles are turning more supportive. The team’s process is explicitly built to identify these turning points and seeks to align bottom-up ideas with favourable country cycles.

Put together, this could be an opportunity to solve concentration, harvest inefficiency through stock picking, and benefit from evolving global trade patterns—while constructing a portfolio whose return drivers are less tied to the same crowded drivers. Additionally, structural growth in many frontier and smaller emerging economies could provide a powerful backdrop for well run businesses to thrive. BRFI’s differentiated opportunity set is not just about cyclical rebounds, but about tapping into long term trends that could underpin resilient business models and sustainable earnings growth.

Managing risk, harnessing diversification

Frontier and smaller emerging markets can be volatile, less liquid and exposed to currency or political shifts. Diversification could therefore be key: because returns are more influenced by local reforms, credit cycles² and company execution, they are often less correlated with developed markets - and with each other - helping to smooth portfolio outcomes over time. The diverse drivers across countries in BRFI’s benchmark have led to volatility over the past five years that is lower than the MSCI Emerging Markets Index, and an even weaker correlation with global equity markets (Source: BlackRock, as at end July 2025). Low correlation between countries means dispersion³ is a key opportunity. While some markets may face headwinds, others are often experiencing periods of growth or recovery. The portfolio managers can continually identify and invest in those pockets of strength, ensuring that there are always opportunities to capture. This dispersion not only helps to smooth overall portfolio volatility but could also allow BRFI to harness a broader set of drivers, diversifying the risk in the aggregate portfolio.

How BRFI Utilises a closed end approach

BRFI combines macro awareness with bottom-up stock selection⁴ to capture improving fundamentals early, while keeping risk intentional through position sizing and independent oversight. The portfolio managers dedicate time to on the ground research, meeting company management, competitors, suppliers, regulators, and other key stakeholders. Over years of investing across cycles, the team has built a long-term knowledge base of companies and countries, enabling a more informed view of possible risks and identify potentially overlooked opportunities. This differentiated expertise is a key source of BRFI’s edge in navigating complex, under researched markets.

The closed end structure⁵ can be a major advantage in these markets. Unlike open ended funds⁶, BRFI does not need to buy or sell securities to meet daily flows. This means the manager can hold positions through periods of illiquidity, avoid forced selling, and take a genuinely long-term view - critical in markets where opportunities can take time to play out. The structure also allows for modest gearing⁷, adding flexibility to capture compelling ideas without compromising risk discipline.

For many investors, BRFI works as a satellite allocation within global equity or Emerging Market orientated portfolios, with the aim of introducing differentiated return drivers and potential income.

† 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.

Summary

Finally, execution matters. Portfolio managers Emily Fletcher and Sam Vecht have delivered outstanding performance by applying a disciplined approach, navigating complex markets with deep on the ground insight and a proven ability to uncover mispriced opportunities. Their track record shows how experience and process can turn volatility into long term value.

BRFI is designed to open up a part of the world most portfolios overlook, using a disciplined blend of macro awareness and bottom-up stock selection. With the valuation gap still wide, stock specific outperformance (versus benchmark) evident across countries, and a portfolio deliberately tilted toward domestic growth areas, BRFI can be a useful diversifier alongside mainstream equity holdings, provided investors are comfortable with the higher risks inherent in frontier and smaller Emerging Markets.

Sources:
¹ Re-shoring is the process of bringing production back to the company's home country, while near-shoring involves moving operations to a nearby country, often to reduce costs while staying geographically close.
² Credit cycles are the recurring phases of expansion and contraction in the availability and cost of credit, typically aligning with broader economic conditions—credit tends to be more accessible during growth periods and tightens during downturns, influencing investment and spending.
³ Low correlation between countries refers to a scenario where markets in different countries move independently of each other, creating a wider range of performance outcomes—this dispersion can offer opportunities for active managers to add value through selective investment decisions.
⁴ Bottom-up stock selection is an investment approach that focuses on analyzing individual companies—such as their fundamentals, management, and growth potential—rather than broader economic or market trends, aiming to identify strong performers regardless of sector or macro conditions.
⁵ Closed-ended structure refers to an investment fund setup where a fixed number of shares are issued and traded on the stock exchange, meaning investors buy and sell shares in the market rather than directly with the fund, allowing for more stable capital and long-term investment strategies.
⁶ Open-ended funds are investment vehicles that continuously issue and redeem shares based on investor demand, allowing investors to buy or sell directly with the fund at its net asset value (NAV), which adjusts daily based on the underlying portfolio.
⁷ Gearing refers to the use of borrowed money (debt) to increase the potential return of an investment. In investment trusts, it means the fund can borrow to invest more than its net assets, which can amplify gains in rising markets but also increase losses in falling ones.

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.

Fund-specific risks

BlackRock Frontiers Investment Trust plc

Counterparty Risk, Currency Risk, Emerging Markets, Frontier Markets, Gearing Risk.

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.

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

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

Diversification - Diversification and asset allocation may not fully protect you from market risk.

Downside management - Risk management cannot fully eliminate the risk of investment loss.