BlackRock Latin American Investment Trust plc (LON:BRLA) has announced its latest portfolio update.
All information is at 31 August 2021 and unaudited.
To learn more about the BlackRock Latin American Investment Trust plc please follow this link: blackrock.com/uk/brla
Performance at month end with net income reinvested
| One month % | Three months % | One year % | Three years % | Five years % | |
| Sterling: | |||||
| Net asset value^ | 1.9 | 1.5 | 25.6 | 7.0 | 15.0 |
| Share price | -1.3 | 0.7 | 26.2 | 12.4 | 18.9 |
| MSCI EM Latin America (Net Return)^^ | 1.9 | 2.6 | 31.1 | 5.8 | 15.4 |
| US Dollars: | |||||
| Net asset value^ | 0.9 | -1.4 | 29.7 | 13.4 | 20.8 |
| Share price | -2.3 | -2.3 | 30.3 | 19.1 | 24.8 |
| MSCI EM Latin America (Net Return)^^ | 0.8 | -0.6 | 34.7 | 12.1 | 21.2 |
^cum income
^^The Company’s performance benchmark (the MSCI EM Latin America Index) may be calculated on either a Gross or a Net return basis. Net return (NR) indices calculate the reinvestment of dividends net of withholding taxes using the tax rates applicable to non-resident institutional investors, and hence give a lower total return than indices where calculations are on a Gross basis (which assumes that no withholding tax is suffered). As the Company is subject to withholding tax rates for the majority of countries in which it invests, the NR basis is felt to be the most accurate, appropriate, consistent and fair comparison for the Company.
Sources: BlackRock, Standard & Poor’s Micropal
At month end
| Net asset value – capital only: | 423.80p |
| Net asset value – including income: | 426.03p |
| Share price: | 372.00p |
| Total assets#: | £185.2m |
| Discount (share price to cum income NAV): | 12.7% |
| Average discount* over the month – cum income: | 13.8% |
| Net gearing at month end**: | 11.1% |
| Gearing range (as a % of net assets): | 0-25% |
| Net yield##: | 5.4% |
| Ordinary shares in issue(excluding 2,181,662 shares held in treasury): | 39,259,620 |
| Ongoing charges***: | 1.1% |
#Total assets include current year revenue.
##The yield of 5.4% is calculated based on total dividends declared in the last 12 months as at the date of this announcement as set out below (totalling 27.69 cents per share) and using a share price of 511.97 US cents per share (equivalent to the sterling price of 372.00 pence per share translated in to US cents at the rate prevailing at 31 August 2021 of $1.3763 dollars to £1.00).
2020 Q3 interim dividend of 5.45 cents per share (paid 09 November 2020).
2020 Q4 Final dividend of 7.45 cents per share (paid on 08 February 2021).
2021 Q1 interim dividend of 6.97 cents per share (paid on 10 May 2021).
2021 Q2 interim dividend of 7.82 cents per share (paid on 6 August 2021).
*The discount is calculated using the cum income NAV (expressed in sterling terms).
**Net cash/net gearing is calculated using debt at par, less cash and cash equivalents and fixed interest investments as a percentage of net assets.
*** Calculated as a percentage of average net assets and using expenses, excluding interest costs for the year ended 31 December 2020.
| Geographic Exposure | % of Total Assets | % of Equity Portfolio * | MSCI EM Latin America Index |
| Brazil | 59.4 | 59.2 | 63.0 |
| Mexico | 27.8 | 27.7 | 24.8 |
| Chile | 7.7 | 7.7 | 5.7 |
| Argentina | 2.4 | 2.4 | 2.3 |
| Peru | 1.6 | 1.6 | 2.2 |
| Panama | 1.4 | 1.4 | 0.0 |
| Colombia | 0.0 | 0.0 | 2.0 |
| Net current liabilities (inc. fixed interest) | -0.3 | 0.0 | 0.0 |
| —– | —– | —– | |
| Total | 100.0 | 100.0 | 100.0 |
| ===== | ===== | ===== |
^Total assets for the purposes of these calculations exclude bank overdrafts, and the net current assets figure shown in the table above therefore excludes bank overdrafts equivalent to 10.7% of the Company’s net asset value.
| Sector | % of Equity Portfolio* | % of Benchmark* |
| Materials | 23.6 | 23.7 |
| Financials | 22.1 | 23.1 |
| Consumer Staples | 9.9 | 15.2 |
| Industrials | 8.3 | 5.8 |
| Communication Services | 8.3 | 7.5 |
| Consumer Discretionary | 7.0 | 5.3 |
| Energy | 5.8 | 9.3 |
| Health Care | 5.7 | 2.6 |
| Information Technology | 4.0 | 2.6 |
| Real Estate | 3.1 | 0.6 |
| Utilities | 2.2 | 4.3 |
| —– | —– | |
| Total | 100.0 | 100.0 |
| ===== | ===== | |
*excluding net current assets & fixed interest
Company | Country of Risk | % of Equity Portfolio | % of Benchmark |
| Vale – ADS | Brazil | 9.0 | 11.8 |
| Banco Bradesco – ADR | Brazil | 6.8 | 4.3 |
| América Movil – ADR | Mexico | 6.3 | 5.2 |
| Petrobrás – ADR: | Brazil | ||
| Equity | 3.3 | 3.1 | |
| Preference Shares | 2.5 | 3.9 | |
| B3 | Brazil | 3.9 | 2.6 |
| Grupo Financiero Banorte | Mexico | 3.8 | 2.7 |
| Walmart de México y Centroamérica | Mexico | 3.6 | 2.8 |
| Grupo México | Mexico | 3.2 | 2.2 |
| Cemex – ADR | Mexico | 3.2 | 1.9 |
| Notre Dame Intermedica Participações | Brazil | 3.0 | 1.2 |
Commenting on the markets, Ed Kuczma and Sam Vecht, representing the Investment Manager noted:
For the month of August 2021, the Company’s NAV returned 1.9%1 with the share price moving -1.3%1. The Company’s benchmark, the MSCI EM Latin America Index, returned 1.9%1 on a net basis (all performance figures are in sterling terms with dividends reinvested).
Latin American (LatAm) equities posted a positive performance over the month with Argentina and Colombia leading the rise.
Allocation in Argentina contributed the most to relative performance over the period while stock selection in Brazil detracted most from relative returns. Our overweight in Mexican telecommunications company, America Movil, was the top contributor on a relative basis as the stock has performed well on the back of better than expected results and deleveraging leading to greater return of capital to shareholders. Our lack of position in Brazilian steel manufacturing company, Companhia Siderurgica, also benefitted the portfolio. Companhia Sidergica underperformed in the period on the back of lower iron ore prices. Iron ore prices have declined as China has seen a significant slow down in steel production following general economic weakness, exacerbated by tightening pollution controls and relatively low steel mill profitability. An overweight position in Via Varejo, a Brazilian retail company, detracted most from relative performance. We remain encouraged by the digital transformation cycle spurred on by Via Varejo’s management and ownership changes and our belief is that it will remain a relevant store and online player in its key categories of electronics, appliances and furniture; however, breaking into the top 3 of online marketplaces will be challenging given increasing competition and heavy investment in logistics from its peers announced during the month. For example, recently Amazon Brazil announced the start of offering one day delivery in 50 states for Amazon Prime members for free, raising concerns on competition in Brazil. Off-benchmark holding in Brazilian car rental company, Movida Participacoes, also weighed on relative returns following recent outperformance. Our investment thesis for the company remains on track as it is executing a ramp-up of growth projects with attractive returns.
Over the month we added to B3, the Brazilian stock exchange, on the back of strong outlook for growth as we do not expect volatility in Brazil to remain depressed for an extended period. We reduced our exposure to Brazilian petroleum company, Petrobras, given increasing noise on market unfriendly pricing policies and view of oil price correction given the impact of the Delta variant China growth/oil demand. We sold our holding of Argentinian flat and long steel manufacturing company, Ternium, following a strong run; regional steel prices are at a peak and we expect stock to follow the steel price down. The portfolio ended the period being overweight to Mexico and Chile, whilst being underweight to Colombia and Peru. At the sector level, we are overweight consumer discretionary and industrials, and underweight consumer staples and energy.
It has been a tough period for Latin America, with many countries hit hard by the COVID-19 crisis. However, we see a strong case for better times ahead for the region as the world rebuilds after the pandemic, and Latin America may be one of the most important beneficiaries of recovery in the global economy. As the region rebuilds, it will have some important tailwinds. Perhaps the most significant is rising commodity prices. Vast stimulus in the US and economic recovery across the world has pushed up demand for commodities after a period of tight supply. Global governments have ambitious, commodity-heavy infrastructure plans, particularly for green energy development. Latin America is also one of the most abundant regions in the world for lithium, iron ore and copper with some of the longest-life reserves at a low cost in Brazil, Chile and Peru.
There are also broader factors that should support economic growth. Across Latin America, a growing middle class is fueling domestic consumption and after a brief hiatus from the pandemic, this spending appears to be resuming. As businesses in the US look to diversify their supply chains opportunities are being created in Mexico, particularly along the northern border, in the manufacturing sector. Importantly, a rich seam of new companies listing on the stock market is creating more opportunities all the time. The buoyancy of the Brazilian IPO (Initial Public Offering) market is perhaps the best example. 2020 was a bumper year for Brazilian IPOs. 28 companies listed on the main exchange, raising BRL$43.7 billion (US$8.3 billion) in spite of the pandemic. This was almost four times the previous year’s figure and the highest level since the giddy pre-crash optimism of 2007. This year looks set to be even more promising; over 40 companies have already said they want to list on Sao Paulo’s B3 exchange this year. There are sound reasons for this, with excess global liquidity, favourable macroeconomic conditions, and increased financial awareness among Brazilian investors, all supporting new issuance in Brazil. This is bringing new sectors and more choice for investors in the region.
Within our portfolio, we have exposure to structural growth themes in the region including healthcare, e-commerce and convenience stores. Against this positive backdrop, we see anecdotal evidence that investors are moving away from China – which has a lot of technology names – to more cyclical markets. Latin American markets, with their focus on materials, energy and financials, are a key beneficiary. Latin America is lightly represented in emerging market benchmarks and has generally been under-owned, so it only takes a small change in sentiment to have a significant impact. We expect more and more investors to rediscover the huge opportunities in this fascinating region.
1Source: BlackRock, as of 31 August 2021.
To learn more about the BlackRock Latin American Investment Trust plc please follow this link: blackrock.com/uk/brla
