BlackRock Latin American Investment Trust plc (LON:BRLA) has announced its latest portfolio update.
All information is at 31 January 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^ | 7.3 | -2.7 | 18.0 | -0.9 | -0.1 |
| Share price | 4.8 | 0.1 | 15.9 | -5.2 | 3.7 |
| MSCI EM Latin America (Net Return)^^ | 7.4 | -0.9 | 21.5 | 7.6 | 6.2 |
| US Dollars: | |||||
| Net asset value^ | 9.9 | 4.1 | 8.4 | -7.4 | -13.5 |
| Share price | 7.3 | 7.1 | 6.4 | -11.4 | -10.2 |
| MSCI EM Latin America (Net Return)^^ | 9.9 | 5.9 | 11.5 | 0.4 | -8.0 |
^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: | 424.43p |
| Net asset value – including income: | 433.36p |
| Share price: | 383.00p |
| Total assets#: | £138.8m |
| Discount (share price to cum income NAV): | 11.6% |
| Average discount* over the month – cum income: | 10.3% |
| Net gearing at month end**: | 8.9% |
| Gearing range (as a % of net assets): | 0-25% |
| Net yield##: | 8.2% |
| Ordinary shares in issue(excluding 2,181,662 shares held in treasury): | 29,448,641 |
| Ongoing charges***: | 1.1% |
#Total assets include current year revenue.
##The yield of 8.2% is calculated based on total dividends declared in the last 12 months as at the date of this announcement as set out below (totalling 38.87 cents per share) and using a share price of 471.51 US cents per share (equivalent to the sterling price of 383.00 pence per share translated in to US cents at the rate prevailing at 31 January 2023 of $1.2311 dollars to £1.00).
2022 Q1 Interim dividend of 7.76 cents per share (paid on 16 May 2022).
2022 Q2 Interim dividend of 5.74 cents per share (paid on 12 August 2022).
2022 Q3 Interim dividend of 6.08 cents per share (paid on 9 November 2022).
2023 Q4 Interim dividend of 6.29 cents per share plus a Special Dividend of 13.00 cents per share (paid on 12 January 2023).
*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 | 63.8 | 63.8 | 60.3 |
| Mexico | 25.4 | 25.4 | 28.7 |
| Chile | 5.8 | 5.7 | 6.6 |
| Argentina | 2.9 | 2.9 | 0.0 |
| Panama | 2.2 | 2.2 | 0.0 |
| Peru | 0.0 | 0.0 | 3.0 |
| Colombia | 0.0 | 0.0 | 1.4 |
| Net current Liabilities(inc. fixed interest) | -0.1 | 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 8.8% of the Company’s net asset value.
| Sector | % of Equity Portfolio* | % of Benchmark* |
| Financials | 24.4 | 23.9 |
| Materials | 19.8 | 24.0 |
| Consumer Staples | 16.9 | 15.6 |
| Industrials | 12.9 | 8.2 |
| Energy | 8.8 | 10.3 |
| Real Estate | 5.4 | 0.7 |
| Health Care | 4.1 | 2.1 |
| Consumer Discretionary | 4.0 | 2.1 |
| Communication Services | 2.4 | 6.7 |
| Information Technology | 1.3 | 0.5 |
| Utilites | 0.0 | 5.9 |
| —– | —– | |
| Total | 100.0 | 100.0 |
| ===== | ===== | |
*excluding net current assets & fixed interest
Company | Country of Risk | % of Equity Portfolio | % of Benchmark |
| Vale – ADS | Brazil | 9.1 | 12.1 |
| Petrobrás – ADR: | Brazil | ||
| Equity | 4.3 | 3.7 | |
| Preference Shares | 2.9 | 4.1 | |
| Banco Bradesco – ADR | Brazil | 6.1 | 3.2 |
| FEMSA – ADR | Mexico | 5.3 | 2.9 |
| Grupo Financiero Banorte | Mexico | 5.1 | 3.7 |
| B3 | Brazil | 4.9 | 2.6 |
| AmBev – ADR | Brazil | 4.8 | 2.2 |
| Itaú Unibanco – ADR | Brazil | 3.0 | 4.1 |
| Sendas Distribuidora | Brazil | 3.0 | 0.6 |
| Hapvida Participacoes | Brazil | 2.7 | 0.8 |
Commenting on the markets, Sam Vecht and Christoph Brinkmann, representing the Investment Manager noted;
For the month ending January 2023, the Company’s NAV returned +7.3%. The Company’s benchmark, the MSCI EM Latin America Index, returned +7.4% on a net basis (all performance figures are in sterling terms with dividends reinvested).1
At the country level, the Company’s positioning in Mexico and Peru contributed positively in January, whilst an off-benchmark exposure to Argentina and aggregate selection in Brazil detracted. The Company’s use of leverage benefitted performance over the month on the back of strong market returns.
Mexican cement producer, Cemex, was the month’s top performer supported by US cement prices increasing a record 8% in January. Peru’s Credicorp also contributed to performance as we exited the position on concerns around the political environment, which have turned out to be correct as the ongoing protests in the country have also negatively impacted the local stock market. Elsewhere, Brazilian car rental company, Localiza, performed well as investors expect an acceleration in growth in 2023 due to the improved competitive positioning following the merger with Unidas. An off-benchmark exposure to investment manager, XP, also benefitted the portfolio as inflation expectations have come down resulting in a more optimistic outlook for rate cuts. A lack of positioning in retailer, Americanas, was also among the period’s largest relative contributors as accounting scandal and fraud accusations resulted in a declared bankruptcy. On the other hand, news flow surrounding this, combined with shared ownership concerns and perception of aggressive accounting practices, also negatively impacting Brazilian beverage producer, Ambev, which was the largest detractor in January. Real estate developer, MRV, was also among the largest dectractors as investors remain concerned over higher-than-expected cash burn to fund new projects in Brazil. An off-benchmark exposure to Argentinian software exporter, Globant, also detracted as sentiment surrounding global IT spend remains weak. Lack of exposure to Southern Copper also weighed on relative performance as industrial metals rallied alongside China reopening and expectations that demand will continue to improve after the Lunar New Year holiday.
In January, we continued to shift risk from Mexico to Brazil on the back of divergent relative performance, specifically reducing exposure to industrial real estate developer Vesta and slightly trimming convenience store operator FEMSA. We leaned into Brazilian positions that stand to benefit from declining rates as the Brazilian rates curve has shifted upwards on the political noise initiated by President Lula. This has had a negative effect on rate sensitive stocks, but we continue to think that the disinflation in Brazil continues and that real interest rates are already at record levels. Therefore, whilst the timing might be slightly delayed, we continue to think that Brazilian interest rates have ample room to move downwards over the next 12-18 months. Specific companies where we increased exposure include real assets such as toll road operator, CCR, as well as rail logistics company, Rumo.
The portfolio ended the period being overweight Brazil, while maintaining off-benchmark exposure to Argentina and Panama. We are underweight Peru, Mexico, Colombia and Chile. At the sector level, we are overweight industrials and real estate, while being underweight utilities and communication services.
Brazil’s economy is holding up in spite of high interest rates. Real rates are positive in Brazil as the country is farthest along in the rate rising cycle, setting up a positive outlook for the equity market as rates peak out. Despite continued uncertainty around future fiscal policy and a potential delay in the downward path of interest rates, we still expect interest rates to shift downwards from the current level of 13.75% over the next 12 months.
We also like Mexico based on the benign politics and solid economic trends, including a rising share of exports to the U.S. However, on that latter point we remain cautious on how the market will behave if the US goes into a recession. Recent outperformance from the market has resulted in a redeployment of risk towards areas of conviction that have lagged.
Elsewhere, whilst we remain underweight, parts of the Chilean market have begun to pique our interest from a relative value lens as selling pressure across the market, led by pension reductions and diversification efforts from high-net-worth individuals, has led to decent assets trading at more attractive valuations.
1Source: BlackRock, as of 31 January 2023.
To learn more about the BlackRock Latin American Investment Trust plc please follow this link: blackrock.com/uk/brla
