BlackRock Latin American Investment Trust plc (LON:BRLA) has announced its portfolio update.
All information is at 31 December 2023 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^ | 7.2 | 11.3 | 29.9 | 37.9 | 29.6 |
| Share price | 12.3 | 14.3 | 27.6 | 33.9 | 38.0 |
| MSCI EM Latin America (Net Return)^^ | 7.5 | 12.5 | 25.2 | 42.5 | 34.4 |
| US Dollars: | |||||
| Net asset value^ | 7.9 | 16.3 | 37.7 | 28.6 | 29.8 |
| Share price | 13.1 | 19.4 | 35.3 | 24.9 | 38.3 |
| MSCI EM Latin America (Net Return)^^ | 8.3 | 17.6 | 32.7 | 32.8 | 34.5 |
^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: | 495.43p |
| Net asset value – including income: | 505.43p |
| Share price: | 447.00p |
| Total assets#: | £150.9m |
| Discount (share price to cum income NAV): | 11.6% |
| Average discount* over the month – cum income: | 13.4% |
| Net Gearing at month end**: | 0.6% |
| Gearing range (as a % of net assets): | 0-25% |
| Net yield##: | 5.1% |
| 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 5.1% 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 569.84 US cents per share (equivalent to the sterling price of 447.00 pence per share translated in to US cents at the rate prevailing at 31 December 2023 of $1.275 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 (To be 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 2022.
| Geographic Exposure | % of Total Assets | % of Equity Portfolio * | MSCI EM Latin America Index |
| Brazil | 59.6 | 60.1 | 61.3 |
| Mexico | 27.0 | 27.2 | 29.0 |
| Chile | 5.6 | 5.6 | 5.4 |
| Argentina | 2.8 | 2.9 | 0.0 |
| Colombia | 2.5 | 2.5 | 1.2 |
| Panama | 1.7 | 1.7 | 0.0 |
| Peru | 0.0 | 0.0 | 3.1 |
| Net current Assets (inc. fixed interest) | 0.8 | 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 1.4% of the Company’s net asset value.
| Sector | % of Equity Portfolio* | % of Benchmark* |
| Financials | 22.8 | 25.9 |
| Consumer Staples | 18.3 | 16.1 |
| Materials | 15.8 | 18.3 |
| Industrials | 12.4 | 10.7 |
| Consumer Discretionary | 10.6 | 1.9 |
| Energy | 9.9 | 12.8 |
| Health Care | 4.0 | 1.6 |
| Real Estate | 2.7 | 1.3 |
| Communication Services | 1.9 | 4.0 |
| Information Technology | 1.6 | 0.6 |
| Utilites | 0.0 | 6.8 |
| —– | —– | |
| Total | 100.0 | 100.0 |
| ===== | ===== | |
*excluding net current assets & fixed interest
Company | Country of Risk | % of Equity Portfolio | % of Benchmark |
| Vale – ADS | Brazil | 9.6 | 8.1 |
| Petrobrás – ADR: | Brazil | ||
| Equity | 5.4 | 4.5 | |
| Preference Shares | 3.2 | 5.5 | |
| Banco Bradesco – ADR: | Brazil | ||
| Equity | 4.5 | 0.8 | |
| Preference Shares | 1.7 | 2.8 | |
| Walmart de México y Centroamérica | Mexico | 5.9 | 3.3 |
| B3 | Brazil | 5.1 | 2.6 |
| FEMSA – ADR | Mexico | 4.8 | 3.8 |
| AmBev – ADR | Brazil | 4.2 | 2.0 |
| Grupo Aeroportuario del Pacifico – ADS | Mexico | 4.0 | 1.0 |
| Itaú Unibanco – ADR | Brazil | 3.8 | 5.1 |
| Grupo Financiero Banorte | Mexico | 3.1 | 3.9 |
Commenting on the markets, Sam Vecht and Christoph Brinkmann, representing the Investment Manager noted;
The Company’s NAV rose by 7.2% in December, slightly underperforming the benchmark (the MSCI Emerging Markets Latin America Index) which returned 7.5% on a net basis over the same period. All performance figures are in sterling terms with dividends reinvested.1
December was another strong month for Latin American markets, with all countries in the green. The region was the best performing region globally, up by 8.3% over the month. Performance was led by Peru (24.5%), Mexico (9.5%), and Colombia (13.5%), while Argentina (+4.6), Brazil (+7.2%), and Chile (+5.9%) underperformed the others on a relative basis.
At the portfolio level, our overweight in the Consumer Discretionary space in Brazil was the key contributor to performance, alongside our position in Chilean industrials. On the other hand, stock selection in the Materials sector in Mexico was the biggest drag on performance. Having no exposure to Peru also hurt, given the relative outperformance of this market over the month.
From a security lens, Brazilian fashion retailer Soma was the biggest contributor to relative returns. As we have more visibility on the impact of the tax reform in Brazil, investors seem to increasingly come to the conclusion that the negative impact is either priced in already or will be passed on to end consumers. The retail sector was also supported by the increased likelihood for rate cuts in the US which should provide room for the central bank to ease more aggressively in 2024. Grupo Aeroportuario del Pacífico (GAPB), the Mexican airport operator, continued its strong run in December and was among the top contributors to relative returns for a second consecutive month. The strong performance in both months reflects that investors overestimated the impact of the changes to airport concessions that were implemented back in October. Chilean lithium producer SQM was another strong performer. The stock performed well in anticipation of the announcement of the partnership with Codelco, which has extended its lease in the Atacama until 2060.
As for detractors, Mexican silver miner Mag Silver, was the worst performer over the month. The performance was largely driven by the decline in silver prices. IRB, the Brazilian reinsurance company, was another detractor, largely reversing strong performance of the previous month. Not owning Peruvian mining company Buenaventura also hurt portfolio performance as the stock enjoyed a ~60% increase after Antofagasta PLC announced that it had acquired a 19% stake in the mining company.
Over the course of December, we made few changes to the portfolio. We took profits and exited Colombian oil & gas company Ecopetrol as our investment thesis has played out and as we are getting incrementally more negative on the outlook for oil prices. We rotated some of our Mexican exposure by reducing our position in Banorte and adding to our holding in Walmart Mexico, reflecting analyst conviction. We also trimmed Globant after strong performance.
Argentina continues to the be largest portfolio overweight, driven by two off-benchmark holdings. Our second largest overweight position is in Panama, driven by an off-benchmark holding in the Industrials sector. On the other hand, we remain underweight in Peru due to its political and economic uncertainty. We remain optimistic about the outlook for Brazil and have been selective in our positioning, with a preference for domestic businesses that will benefit more from further rate cuts.
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 are especially positive about the outlook for Brazil. We believe that the combination of a benign outlook for inflation and a relatively prudent fiscal policy by the government will enable the central bank to decrease interest rates faster than market participants currently expect. We expect further upside to the equity market in the next 12-18 months as local capital starts flowing back 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 at 210% year on year, foreign currency reserves depleted and multiple economic imbalances. The country needs to go through a painful adjustment process and we worry about the hardship that this inflicts on society. We are hopeful that the country comes out stronger after the adjustment process, but we have limited exposure to the Argentinian economy for now.
1Source: BlackRock, as of 31 December 2023.
To learn more about the BlackRock Latin American Investment Trust plc please follow this link: blackrock.com/uk/brla
