BlackRock Latin American Investment Trust plc (LON:BRLA) has announced its latest portfolio update.
All information is at 29 February 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
| One month % | Three months % | One year % | Three years % | Five years % | |
| Sterling: | |||||
| Net asset value^ | -0.3 | -0.8 | 18.9 | 43.1 | 13.5 |
| Share price | -2.9 | 0.7 | 14.2 | 35.9 | 16.4 |
| MSCI EM Latin America (Net Return)^^ | 0.5 | 3.0 | 17.1 | 54.2 | 21.5 |
| US Dollars: | |||||
| Net asset value^ | -0.9 | -0.9 | 24.2 | 29.5 | 8.0 |
| Share price | -3.6 | 0.6 | 19.3 | 23.0 | 10.7 |
| MSCI EM Latin America (Net Return)^^ | -0.2 | 2.9 | 22.4 | 39.5 | 15.5 |
^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: | 457.87p |
| Net asset value – including income: | 461.79p |
| Share price: | 395.00p |
| Total assets#: | £142.7m |
| Discount (share price to cum income NAV): | 14.5% |
| Average discount* over the month – cum income: | 12.5% |
| Net Gearing at month end**: | 5.8% |
| Gearing range (as a % of net assets): | 0-25% |
| Net yield##: | 5.8% |
| Ordinary shares in issue(excluding 2,181,662 shares held in treasury): | 29,448,641 |
| Ongoing charges***: | 1.13% |
#Total assets include current year revenue.
##The yield of 5.8% is calculated based on total dividends declared in the last 12 months as at the date of this announcement as set out below (totalling 28.82 cents per share) and using a share price of 499.66 US cents per share (equivalent to the sterling price of 395.00 pence per share translated in to US cents at the rate prevailing at 29 February 2024 of $1.265 dollars to £1.00).
2023 Q1 Interim dividend of 6.21 cents per share (Paid on 16 May 2023)
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)
2024 Q4 Interim dividend of 8.05 cents per share (Paid on 09 February 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.
| Geographic Exposure | % of Total Assets | % of Equity Portfolio * | MSCI EM Latin America Index |
| Brazil | 60.0 | 59.5 | 60.8 |
| Mexico | 27.0 | 26.7 | 29.2 |
| Chile | 5.6 | 5.5 | 5.4 |
| Argentina | 2.6 | 2.6 | 0.0 |
| Colombia | 2.5 | 2.5 | 1.2 |
| Panama | 1.6 | 1.6 | 0.0 |
| Multi-Country | 1.6 | 1.6 | 0.0 |
| Peru | 0.0 | 0.0 | 3.4 |
| Net current Liabilities (inc. fixed interest) | -0.9 | 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 4.9% of the Company’s net asset value.
| Sector | % of Equity Portfolio* | % of Benchmark* |
| Financials | 22.6 | 26.3 |
| Consumer Staples | 18.2 | 16.0 |
| Materials | 16.3 | 17.2 |
| Industrials | 11.7 | 10.2 |
| Consumer Discretionary | 10.9 | 2.0 |
| Energy | 10.3 | 13.8 |
| Health Care | 3.8 | 1.4 |
| Real Estate | 2.6 | 1.3 |
| Communication Services | 2.1 | 4.2 |
| Information Technology | 1.5 | 0.5 |
| Utilites | 0.0 | 7.1 |
| —– | —– | |
| Total | 100.0 | 100.0 |
| ===== | ===== | |
*excluding net current assets & fixed interest
Company | Country of Risk | % of Equity Portfolio | % of Benchmark |
| Petrobrás: | Brazil | ||
| Equity | 2.2 | ||
| Equity ADR | 3.5 | 4.9 | |
| Preference Shares ADR | 3.5 | 6.1 | |
| Vale – ADS | Brazil | 8.9 | 7.2 |
| Walmart de México y Centroamérica | Mexico | 5.9 | 3.3 |
| Banco Bradesco: | Brazil | ||
| Equity ADR | 3.8 | 0.6 | |
| Preference Shares | 1.9 | 2.3 | |
| B3 | Brazil | 4.1 | 2.4 |
| AmBev: | |||
| Equity | Brazil | 0.8 | |
| Equity ADR | Brazil | 3.1 | 1.9 |
| FEMSA – ADR | Mexico | 3.6 | 3.8 |
| Grupo Aeroportuario del Pacifico – ADS | Mexico | 3.6 | 0.9 |
| Itaú Unibanco – ADR | Brazil | 3.4 | 5.2 |
| Grupo Financiero Banorte | Mexico | 3.4 | 4.2 |
Commenting on the markets, Sam Vecht and Christoph Brinkmann, representing the Investment Manager noted;
The Company’s NAV fell -0.3% in February, underperforming the benchmark, MSCI EM Latin America Index, which returned 0.5% on a net basis over the same period. All performance figures are in sterling terms with dividends reinvested.
Emerging markets more broadly almost fully recovered from January weakness, gaining +4.6% in February and broke its four-month streak to marginally outperform developed markets (+4.1%) by +0.5%. Latin American markets lagged the rest of emerging markets, finishing the month flat (-0.5%). Mexico (-3.1%) and Argentina (-2.9%) led declines, whilst Peru (+6.1%) and Chile (+6.0%) were at the top of the table.
At the portfolio level, our overweight and stock selection within the Consumer Staples space in Mexico was the key contributor to performance, alongside our Chilean Industrials exposure. On the other hand, stock selection in the Brazilian Financials sector hurt relative returns. Having no exposure to Peru was another drag over the period.
From a security lens, Chilean lithium producer, SQM, was the largest contributor over the month, reversing some of the January losses. Alpargatas, a Brazilian footwear manufacturer, was another strong performer after 4Q23 results indicate that their inventories continue to improve. An overweight position in Becle, a Mexican producer and supplier of alcoholic beverages most famously known for their high-end tequila brand Jose Cuervo, also helped returns. The company delivered strong 4Q results, beating consensus by 15%. The portfolio’s performance was also supported by an off-benchmark exposure in Argentina through steel pipe manufacturer, Tenaris. The stock rose following a 4Q (EBITDA) beat, where results had been helped by an increase in shipment to the Middle East and for offshore pipeline projects.
On the flipside, Banco Bradesco was the worst performing stock over the month. The stock sold off after an earnings miss amid high credit costs, and weaker 2024 guidance. While it has taken longer than expected, we continue to believe they will benefit from falling rates in Brazil. A lack of exposure to Peruvian bank, Credicorp, was another detractor as the company’s FY24 guidance was better than consensus. While not having a holding in Brazilian electric equipment firm, WEG, was one of the top contributors in January, this hurt returns in February. The company reported better-than-expected results due to a one-off tax-gain. We maintain our cautious stance on the name as we see sequential margin deterioration going forward.
We made few changes to the portfolio in February. We continued to reduce our exposure to Mexican convenience store operator FEMSA, as our investment case has largely played out and as we see margin pressure at their core convenience store Oxxo. We traded against relative performance by trimming our exposure to Brazilian bank Itau and used the proceeds to top up our holding in Bradesco following poor results. We think the performance and valuation differential between the two banks is too large. We re-initiated a position in Brazilian investment management platform, XP Inc, as the company has strong operating leverage to falling interest rates.
Argentina continues to the be largest portfolio overweight, driven by two off-benchmark holdings (with no exposure to domestic Argentina). Panama appears as our second largest overweight, due to our off-benchmark holding in Copa Airlines. 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 200% 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.
1Source: BlackRock, as of 29 February 2024.
To learn more about the BlackRock Latin American Investment Trust plc please follow this link: blackrock.com/uk/brla
