BlackRock Latin American Investment Trust plc (LON:BRLA) has announced its latest portfolio update.
All information is at 31 July 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^ | 5.4 | 23.3 | 36.2 | 57.9 | 26.2 |
| Share price | 9.0 | 26.6 | 32.6 | 61.3 | 30.9 |
| MSCI EM Latin America (Net Return)^^ | 3.9 | 14.1 | 23.8 | 52.7 | 24.0 |
| US Dollars: | |||||
| Net asset value^ | 6.6 | 26.2 | 44.0 | 54.8 | 23.8 |
| Share price | 10.3 | 29.5 | 40.3 | 58.2 | 28.5 |
| MSCI EM Latin America (Net Return)^^ | 5.1 | 16.8 | 30.9 | 49.7 | 21.6 |
^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: | 489.49p |
| Net asset value – including income: | 493.54p |
| Share price: | 434.50p |
| Total assets#: | £145.4m |
| Discount (share price to cum income NAV): | 12.0% |
| Average discount* over the month – cum income: | 10.8% |
| Net Cash at month end**: | 0.4% |
| Gearing range (as a % of net assets): | 0-25% |
| Net yield##: | 7.0% |
| 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 7.0% is calculated based on total dividends declared in the last 12 months as at the date of this announcement as set out below (totalling 39.12 cents per share) and using a share price of 559.05 US cents per share (equivalent to the sterling price of 434.50 pence per share translated in to US cents at the rate prevailing at 31 July 2023 of $1.2867 dollars to £1.00).
2022 Q3 Interim dividend of 6.08 cents per share (paid on 9 November 2022).
2022 Q4 Interim dividend of 6.29 cents per share plus a Special Dividend of 13.00 cents per share (paid on 12 January 2023).
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 (Payable on 11 August 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 | 59.6 | 59.8 | 59.8 |
| Mexico | 26.6 | 26.7 | 30.1 |
| Chile | 5.5 | 5.5 | 5.9 |
| Argentina | 3.5 | 3.5 | 0.0 |
| Colombia | 2.9 | 2.9 | 1.2 |
| Panama | 1.5 | 1.6 | 0.0 |
| Peru | 0.0 | 0.0 | 3.0 |
| Net current Assets(inc. fixed interest) | 0.4 | 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 0.0% of the Company’s net asset value.
| Sector | % of Equity Portfolio* | % of Benchmark* |
| Financials | 26.2 | 25.3 |
| Materials | 17.1 | 19.2 |
| Consumer Staples | 16.9 | 16.3 |
| Energy | 12.2 | 11.8 |
| Industrials | 9.5 | 9.0 |
| Consumer Discretionary | 7.1 | 1.9 |
| Health Care | 4.2 | 2.1 |
| Real Estate | 2.6 | 0.7 |
| Communication Services | 2.2 | 6.7 |
| Information Technology | 2.0 | 0.5 |
| Utilites | 0.0 | 6.5 |
| —– | —– | |
| Total | 100.0 | 100.0 |
| ===== | ===== |
*excluding net current assets & fixed interest
Company | Country of Risk | % of Equity Portfolio | % of Benchmark |
| Petrobrás – ADR: | Brazil | ||
| Equity | 7.3 | 4.2 | |
| Preference Shares | 1.7 | 4.8 | |
| Banco Bradesco – ADR: | Brazil | ||
| Equity | 4.7 | 0.8 | |
| Preference Shares | 1.8 | 2.9 | |
| Grupo Financiero Banorte | Mexico | 5.9 | 3.8 |
| Vale – ADS | Brazil | 5.9 | 7.6 |
| FEMSA – ADR | Mexico | 5.2 | 3.4 |
| B3 | Brazil | 4.6 | 2.8 |
| AmBev – ADR | Brazil | 4.3 | 2.3 |
| Grupo Aeroportuario del Pacifico – ADS | Mexico | 3.7 | 0.8 |
| Itaú Unibanco – ADR | Brazil | 3.3 | 4.5 |
| Gerdau – Preference shares | Brazil | 3.3 | 1.1 |
Commenting on the markets, Sam Vecht and Christoph Brinkmann, representing the Investment Manager noted;
The Company’s NAV was up by 5.4% in July, outperforming the benchmark, the MSCI EM Latin America Index, which returned 3.9% on a net basis over the same period. All performance figures are in sterling terms with dividends reinvested.1
Latin America had another strong month of performance, gaining +5.1% in July with all markets posting positive returns. Colombia (+13.7%) was the best performer on the back of rising Brent crude oil prices and expectations that the Central Bank will cut rates soon. Peru (+11.6%) was another strong performer, helped by a rise in copper prices. The remaining regions also posted positive returns; Chile +5.8%, Brazil +4.9% and Mexico +4.6%.
From a country perspective, Brazil was the biggest contributor to overall portfolio returns, with strong security selection within the Consumer Discretionary space. Mexico was another strong contributor, helped by our overweight in the Financial sector. Exposure to Colombia also contributed on the margin. The main detractors over the course of July were Peru and Chile.
Gerdau SA, the Brazilian steel manufacturer, was the month’s best performing stock on the back of increased market optimism regarding stimulus measures in China, which would support globally commodity prices including steel. An off-benchmark exposure through Brazilian low-income homebuilder, MRV, also benefitted the portfolio. The company reported record pre-sales numbers, up 48% year-on-year. This is a highly levered name that should continue to benefit from the upcoming rate cuts in the country. Pagseguro, the Brazilian payments acquirer that we initiated a position in last month, also performed well on the back of the same rate cuts expectations. Elsewhere in the region, an overweight allocation to Mexican bank, Banorte, also helped returns. While the increase in net profits in the second quarter of 2023 was below consensus expectations, the share price was helped by an upward earnings guidance and the announcement of an extraordinary dividend to be paid at the end of this year. As for detractors to performance over the course of July, not owning Prio, the Brazilian oil & gas company, hurt returns following a rebound in the oil price. Our underweight position in Southern Copper Corporation, the Peruvian copper company, also weighed on returns as the stock also rallied on hopes for a Chinese policy stimulus.
We made a few changes to the portfolio in July. We continued to take profits in names that have performed well in Brazil, primarily through trimming our exposure to the Brazilian stock exchange, B3, as well taking some profits in Gerdau. We have reinvested some of the Gerdau proceeds into Vale, on the belief that this name represents better relative value for a similar commodity exposure (for example Vale produces iron ore and Gerdau long steel). We exited our position in Movida, the Brazilian car rental company, and reinvested this into Vamos, a truck leasing company, also based in Brazil. We believe the stock is trading at a cheap valuation and expect the company to benefit from the rate cuts due to company’s current leverage levels. We also exited our position in Cemex, the Mexican cement producer, and used some of the proceeds to top up our holding in Walmex. The latter has underperformed on cost pressures and disinflation, but we believe that the negative earnings revisions are bottoming out. We also added to Grupo Aeropuerto Mexico, the Mexican airport operator, as the stock has corrected due to continued market concerns around concession assets in Mexico.
Outlook
Our stance on Brazil remains positive as our thesis of slowing inflation and sound fiscal policies have partially played out, and we expect a monetary easing cycle to start imminently. Interest rate cuts are now being priced in by the market participants and the equity market has rallied strongly on the back of this. However, while foreign capital has started to flow into Brazil, local equity flows have continued to be negative year-to-date as the equity market struggles to compete with a risk-free rate of return of close to 14%. We therefore believe there is more room for gains over the next 12-18 months. While we have reduced our positions in Brazil overall following the recent strong performance, it remains a dominant bet in the portfolio.
We are also positive on the outlook for the Mexican economy as it is a key beneficiary from the re-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. In addition, we believe that the Mexican economy will be relatively more sensitive to a potential slowdown in economic activity in the United States in response to rising interest rates there.
During July, we spent a few days in Argentina to meet with politicians and the Ministry of Finance in order to get a better understanding of the economic and political situation ahead of the upcoming elections.
The market has rallied strongly in recent months, Argentina is up 45.5% year-to-date, as the market is expecting the opposition to win. However, we believe that the economic situation will remain challenging and difficult, irrespective of who will form the next government. Since markets have rallied so much already (leaving less room for errors), we currently have no positions with exposure to domestic Argentina, the two names we hold are global exporters.
In a global context, we remain optimistic about Latin America as a whole. Central banks have been proactive in increasing interest rates to help control inflation, which has started to fall across most countries in the region. We will likely see central banks begin to lower rates in the near term, which should support both economic activity and asset prices. In addition to this normal economic cycle, 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.
1Source: BlackRock, as of 31 July 2023.
24 August 2023
To learn more about the BlackRock Latin American Investment Trust plc please follow this link: blackrock.com/uk/brla
