BlackRock Latin American Investment Trust NAV rose +1.4% in March, outperforming benchmark

BlackRock Latin American Investment Trust plc (LON:BRLA) has announced its latest portfolio update.

All information is at 31 March 2024 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

^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

#Total assets include current year revenue.

##The yield of 5.9% is calculated based on total dividends declared in the last 12 months as at the date of this announcement as set out below (totalling 30.00 cents per share) and using a share price of 506.56 US cents per share (equivalent to the sterling price of 401.00 pence per share translated in to US cents at the rate prevailing at 31 March 2024 of $1.263 dollars to £1.00).

2023 Q2 Interim dividend of 7.54 cents per share (Paid on 11 August 2023)

2023 Q3 Interim dividend of 7.02 cents per share (Paid on 09 November 2023)

2023 Q4 Interim dividend of 8.05 cents per share (Paid on 09 February 2024)

2024 Q1 Interim dividend of 7.39 cents per share (To be paid on 16 May 2024)

*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.

*** The Company’s ongoing charges are calculated as a percentage of average daily net assets and using the management fee and all other operating expenses excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain non-recurring items for the year ended 31 December 2023.

^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 4.5% of the Company’s net asset value.

*excluding net current assets & fixed interest

Commenting on the markets, Sam Vecht and Christoph Brinkmann, representing the Investment Manager noted;

The Company’s NAV rose +1.4% in March, outperforming the benchmark, MSCI EM Latin America Index, which returned 1.2% on a net basis over the same period. All performance figures are in sterling terms with dividends reinvested.

Emerging markets more broadly continued their strong run from February, gaining +2.5% in March. Latin America finished the month up +1.1%. Brazil (-1.8%) was the major driver of muted returns on softer economic data. However, all the other Latin American countries posted positive returns. Argentina was the strongest performer(+12.7%), followed by Colombia (+10.6%), Peru (+10.4%), Mexico (+5.4%) and Chile (+2.1%).

At the portfolio level, our off-benchmark holding in an Ecuadorian gold miner was the key contributor to performance, alongside our Chilean Materials exposure. On the other hand, having no exposure to Peru hurt relative returns. Stock selection in the Brazilian Materials sector also hurt returns.

From a security lens, Mexican silver miner, Mag Silver, was the largest contributor over the month followed by Ecuadorian gold miner, Lundin Gold. Both stocks have been propelled higher by rising gold and silver prices.

Overweight in Mexican airport operator Grupo Aeroportuario del Pacífico (GAPB) also helped returns on the back of better-than-expected passenger traffic numbers along with a strong Mexican Peso. Lojas Renner, a Brazilian apparel chain, also contributed to performance as the market is starting to anticipate a turnaround in sales and consumer credit (due to declining interest rates).

On the flipside, not owning Peruvian miner Southern Copper weighed on performance. The Peruvian market has done well and the stock has also been supported by strong copper prices. We currently have no holdings in the country and maintain our cautious stance due to the political and economic uncertainty. No exposure to Mexican cement producer, Cemex, also weighed on returns. While Alpargatas, a Brazilian footwear manufacturer, was among the top contributors in February, the stock pulled back in March, detracting from portfolio performance.

We made some changes to the portfolio in March. In Argentina, we exited steel pipe manufacturer, Tenaris as our investment case has played out. We also further diversified our bets by adding to IT services company Globant. We added to our holding in Brazilian retailer Lojas Renner as our conviction in our thesis is increasing. We are starting to see tentative signs that the credit book is finally turning around.

We reduced our overweight position in Cuervo, a Mexican producer and supplier of alcoholic beverages most famously known for their high-end tequila brand Jose Cuervo, to take profits. We also switched some of our position in FEMSA into Walmex, as we are concerned the former will deliver weak 1Q24 results on the back of labor cost pressure in Mexico.

Multi-Country appears as our largest overweight, due to our holding in Lundin Gold, a Canadian based mining company with operations in Ecuador. Argentina is our second largest portfolio overweight, driven by one off-benchmark holding (with no exposure to domestic Argentina). On the other hand, we remain underweight in Peru due to its political and economic uncertainty. The second largest portfolio underweight is Mexico.

Outlook

We remain optimistic about the outlook for Latin America. Central banks have been proactive in increasing interest rates to help control inflation, which has fallen significantly across the region. As such we have started to see central banks beginning to lower interest rates, which should support both economic activity and asset prices. In addition, the whole region is benefitting from being relatively isolated from global geopolitical conflicts. We believe that this will lead to both an increase in foreign direct investment and an increase in allocation from investors across the region.  

Brazil is the showcase of this thesis – with the central bank cutting the policy rate considerably. We anticipate further reductions, particularly if the Federal Reserve ceases its own rate hikes. The government’s fiscal framework being more orthodox than market expectations has helped to reduce uncertainty regarding the fiscal outlook and was key for confidence. We expect further upside to the equity market in the next 12-18 months as local capital starts flowing into the market.  

We remain positive on the outlook for the Mexican economy as it is a key beneficiary of the friend-shoring of global supply chains. Mexico remains defensive as both fiscal and the current accounts are in order. While our view remains positive, we have taken profits after a strong relative performance, solely because we see even more upside in other Latin American markets such as Brazil. We also note that the Mexican economy will be relatively more sensitive to a potential slowdown in economic activity in the United States.

We continue to closely monitor the political and economic situation in Argentina, after libertarian Javier Milei unexpectedly won the presidential elections in November. Milei is facing a very difficult situation, with inflation above 250% year-on-year, FX reserves depleted and multiple economic imbalances. To further gauge sentiment on the ground, we travelled to the country in January. The trip further instilled our cautious view on the economic outlook for the country, and we see no fundamental reasons as to why we would want to buy this market now.

We acknowledge the strengths of the data in the United States, but we believe that, ultimately, the domestic economic outlook in the Latin American countries will be the key driver of local interest rates. We therefore maintain conviction in the Company’s positioning in rate-sensitive domestic stocks. In addition to that, after three months of very strong labor market data and higher-than-expected inflation data in the United States, we believe there is a high probability that both measures will soften going forward. This view is predicated on leading indicators such as hiring intentions and high-frequency pricing data. If this view would prove to be correct, there should be less pressure from rising rates in the United States.

¹Source: BlackRock, as of 31 March 2024.

To learn more about the BlackRock Latin American Investment Trust plc please follow this link: blackrock.com/uk/brla