Accessing undiscovered growth opportunities for investors

Global equity markets are designed to connect capital with exciting long-term ideas. For companies, it enables them to grow their business, explore new markets and build new products, while investors can seek out interesting and diverse businesses, with the capacity for long-term 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.

Investing for long-term growth does not need to be complicated. There are three variables you can call on to grow your wealth over time: how much you invest, how long you invest for, and how fast your investment grows. The first two are in your hands, while the responsibility for the third one will often be handed to a specialist fund manager.

Growth can be your secret weapon in saving for the long-term, so it is worth picking your fund manager with care. A good fund manager should be able to harness opportunities that emerge from the global economy over time. Witness the rapid growth of technology, the economic emergence of Indonesia or Brazil, or the evolution of healthcare. By targeting areas of growth, investors can align with the most innovative and creative areas of an economy.

This should mean that every pound you save works harder. The effect of compounding becomes more powerful the longer you save. Over a year or two, a percent or two extra on your returns may not make a meaningful difference, but over 20 years, the effect can be profound. A £10,000 investment growing at 7% rather than 5% will be worth an additional £13,200 over 20 years.

Aligning your investments with pockets of growth in the global economy can also help you deal with the inflation bogeyman. While investors tend to see risk in terms of losing money, another key risk is that your savings don’t keep pace with inflation, and therefore lose purchasing power in real terms. Stock markets as a whole have a better track record of outpacing inflation than either cash or fixed income, but targeting growth segments of the global economy may provide an even greater safety net.¹

Where to find growth opportunities

Global economic growth has been steady at around 3% in recent years.² But every year there will be pockets of the world economy that are growing faster than that. For example, emerging and developing economies are projected to grow at 4.2% for 2025, compared to 1.9% for advanced economies. Within emerging markets, there are pockets that are growing even faster. Indonesia – which forms an 11% weighting in the BlackRock Frontiers Investment Trust - has a growth rate of over 5%.^2,3

It is a similar picture within individual sectors. There are new growth themes emerging all the time, that help reshape economies and tap into vast new markets. AI, for example, is expected to growth to a near-$5 trillion market by 2033, according to the UN.⁴ The middle class in emerging markets, for example, is set to double over the next decade, expanding from 354 million households in 2024 to 687 million households by 2034, according to Oxford Economics.⁵ There are rapid developments in healthcare, in fintech, or in cybersecurity.

These trends will have multiple strands. Within artificial intelligence, for example, there are companies that create the infrastructure for AI - cloud computing, data centres, data analytics – and those that reap the benefits from AI. These are companies that can operate more efficiently, or explore new avenues of growth as a result of AI technologies.

For consumer growth, this might be areas such as luxury goods. China has been an important market for Hermes, for example, one of the top ten holdings in the BlackRock Greater Europe Trust.⁶ But it could also be in areas such as travel and leisure. The BlackRock Frontiers Investment Trust holds Wizz Air, for example⁷, a Hungarian low-cost airline that aims to provide air travel in regions that may have been underserved or had limited options.⁸

The benefits of targeting areas like this is that their end markets are growing. This means they are not fighting with their competitors for a share of a static market, or taking on debt to try and magnify returns in a slow growth area. Their pool of customers refreshes. Companies that are aligned with these growth areas have a smoother path to growing their revenues.

Investing in growth

While investing in growth areas has clear advantages, it does come with some pitfalls. If investors catch on to a specific area of growth, there can be over-exuberance. This can see prices for growth Soucompanies bid higher and higher.

This was evident during the technology boom of the late 1990s, but smaller-scale bubbles occur frequently in stock market history. For example, there was a commodities boom based on Chinese growth in the 2010s. Arguably, prices for some artificial intelligence stocks moved to elevated levels in late 2024.

The problem is seldom the growth element. Often these companies continue to grow rapidly. The problem is that the starting valuation is too high and they make a bad investment. For investors, the key is not to overpay for high growth and to target areas where growth is undervalued: if a company’s growth is well-understood by the market, it may already be in the price.

A strong analyst team can find pockets of undiscovered growth, where the market still has to catch up to the opportunity. At BlackRock, our analyst teams are on the ground across the world, aiming to uncover these sources of undervalued growth. They aim to find companies with plenty of growth where the market may not have recognised the opportunity.

Investing for growth also requires a strong sell discipline. It is easy to ‘fall in love’ with a great company, and keep holding it long after its share price reflects its potential growth. It requires discipline to sell a company that may still be doing well, but where that strength has been recognised and rewarded by the market. Investing for growth requires strict risk parameters. At BlackRock, these are provided by our in-house risk team.

Where to find growth in the current market

At times when markets are volatile, it is tempting to turn away from growth assets in favour of ‘safer haven’ options such as cash or treasuries. In reality, volatile markets can be a fertile time for growth investors. Good growth companies may move to lower valuations. Markets may be irrational in the short-term, but long-term investors can ride out these fluctuations.

There are a range of growth themes that are well-established and well-understood by the market, such as the potential for artificial intelligence. In particular, the focus on a handful of US mega-cap stocks has persisted for some time. This has absorbed a lot of market oxygen and other sources of growth in the global economy have been overlooked.

For example, there are companies that could benefit from AI adoption in terms of business growth and efficiency. These might be companies with valuable data sets that can be analysed and commercialised. Valuations for these companies tend to be more reasonable. Growth in emerging markets has been widely overlooked as investors have focused on the opportunities in the US market. Across the BlackRock investment trusts, we find plenty of opportunities across Latin America, across smaller ‘frontier’ emerging markets, or in parts of emerging Europe.

An area that has been a source of long-term growth historically is UK smaller companies. Smaller companies tend to be under-researched, which creates more opportunity for skilled stockpickers to find pockets of growth that the market may have overlooked. UK smaller companies have had a period in the investment wilderness, as the weakness of the domestic economy, higher interest rates and widespread risk aversion have weighed on the sector. However, they may be more insulated from global trading tensions, and valuations look low relative to history.

As markets diversify and the focus shifts, we believe areas of underappreciated growth will start to command more investor attention. This may prove to be a good time to be a growth investor with an eye for the long-term.

¹ IG Index - How does inflation affect the stock market? - 7 April 2025
² IMF - World Economic Outlook - January 2025
³ BlackRock - BlackRock Frontiers Investment Trust plc - February 2025
⁴ UN Trade & Development - AI market projected to hit $4.8 trillion by 2033, emerging as dominant frontier technology - 7 April 2025
⁵ Oxford Economics - The future of the middle class in emerging markets - 16 October 2024
⁶ Reuters - Birkin bag maker Hermes extends lead over rivals with end-of-year sales surge - February 14, 2025
⁷ BlackRock - BlackRock Frontiers Investment Trust plc - April 2025
⁸ WizzAir - WizzAir Holdings PLC page 4 - 14 June 2024

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

BlackRock Greater Europe Investment Trust plc
Counterparty Risk, Currency Risk, Emerging Markets, Gearing Risk, Liquidity Risk

BlackRock Smaller Companies Trust plc
Counterparty Risk, Gearing Risk, Liquidity Risk, Smaller Companies

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.

Liquidity Risk: The Fund's investments may have low liquidity which often causes the value of these investments to be less predictable. In extreme cases, the Fund may not be able to realise the investment at the latest market price or at a price considered fair.

Smaller Companies: Shares in smaller companies typically trade in less volume and experience greater price variations than larger companies.