BlackRock Latin American Investment Trust plc (LON:BRLA) has announced its latest portfolio update.
All information is at 30 June 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^ | 9.9 | 19.5 | 34.8 | 56.0 | 35.2 |
| Share price | 8.9 | 16.0 | 23.4 | 44.1 | 39.9 |
| MSCI EM Latin America (Net Return)^^ | 9.2 | 10.9 | 24.0 | 53.5 | 31.2 |
| US Dollars: | |||||
| Net asset value^ | 12.7 | 22.9 | 41.3 | 60.7 | 30.3 |
| Share price | 11.7 | 19.3 | 29.3 | 48.4 | 34.8 |
| MSCI EM Latin America (Net Return)^^ | 12.0 | 14.0 | 29.8 | 57.9 | 26.3 |
^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: | 464.46p |
| Net asset value – including income: | 474.19p |
| Share price: | 404.00p |
| Total assets#: | £139.7m |
| Discount (share price to cum income NAV): | 14.8% |
| Average discount* over the month – cum income: | 13.4% |
| Net Cash at month end**: | 2.6% |
| Gearing range (as a % of net assets): | 0-25% |
| Net yield##: | 7.6% |
| 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 7.6% 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 513.63 US cents per share (equivalent to the sterling price of 404.00 pence per share translated in to US cents at the rate prevailing at 30 June 2023 of $1.2713 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 | 58.3 | 59.8 | 57.9 |
| Mexico | 25.2 | 25.9 | 31.5 |
| Chile | 6.0 | 6.1 | 6.4 |
| Argentina | 3.9 | 4.0 | 0.0 |
| Colombia | 2.5 | 2.6 | 1.1 |
| Panama | 1.5 | 1.6 | 0.0 |
| Peru | 0.0 | 0.0 | 3.1 |
| Net current Assets(inc. fixed interest) | 2.6 | 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 | 27.4 | 25.1 |
| Materials | 18.5 | 21.4 |
| Consumer Staples | 15.5 | 16.7 |
| Energy | 12.5 | 9.9 |
| Industrials | 8.9 | 9.1 |
| Consumer Discretionary | 5.7 | 1.8 |
| Health Care | 4.4 | 1.5 |
| Communication Services | 2.5 | 7.1 |
| Real Estate | 2.4 | 0.7 |
| Information Technology | 2.2 | 0.4 |
| Utilites | 0.0 | 6.3 |
| —– | —– | |
| Total | 100.0 | 100.0 |
| ===== | ===== | |
*excluding net current assets & fixed interest
Company | Country of Risk | % of Equity Portfolio | % of Benchmark |
| Petrobrás – ADR: | Brazil | ||
| Equity | 7.4 | 3.5 | |
| Preference Shares | 1.8 | 4.0 | |
| Banco Bradesco – ADR: | Brazil | ||
| Equity | 5.0 | 0.7 | |
| Preference Shares | 1.8 | 2.6 | |
| Vale – ADS | Brazil | 5.8 | 9.8 |
| Grupo Financiero Banorte | Mexico | 5.8 | 4.0 |
| FEMSA – ADR | Mexico | 5.5 | 3.4 |
| B3 | Brazil | 5.1 | 2.5 |
| AmBev – ADR | Brazil | 4.5 | 2.4 |
| Itaú Unibanco – ADR | Brazil | 3.5 | 4.5 |
| Gerdau – Preference shares | Brazil | 3.5 | 1.0 |
| Hapvida Participacoes | Mexico | 3.1 | 0.5 |
Commenting on the markets, Sam Vecht and Christoph Brinkmann, representing the Investment Manager noted;
The Company’s NAV was up 9.9% in June, outperforming the benchmark, MSCI EM Latin America Index which returned 9.2% on a net basis over the same period. All performance figures are in sterling terms with dividends reinvested.1
Latin America led global performance, gaining +12.0% in June with all markets posting positive returns. Brazil was up +16.0% as the market moved forward their expectations for rate cuts by the central bank from September to August, largely driven by a further decline in inflation expectations. Argentina gained +26.0% as the market prepares for political change, with final Presidential candidates being announced. Mexico lagged the region gaining +5%.
Brazil continues to be the top contributor from a country perspective. The market has rallied in recent months as inflation has come off sharply, enabling the central bank to start easing its currently very restrictive monetary policy. Our underweight positioning in Mexico was the second top contributor on a relative basis. Off benchmark names in Argentina and Panama weighed on returns.
Our overweight position in Brazilian supermarket chain Assai, contributed the most to the portfolio returns. The stock performed well, along with other Brazilian stocks, as the market continued to rally on the back of rate cut expectations. Other noticeable outperformer in Brazil was XP, an investment management platform, that benefits if local investors allocate more funds from fixed income to equities. Being underweight America Movil, a Mexican telecommunications company, has helped relative returns, as the company has seen earnings downgrades, partially on the back of the strength of the Mexican Peso. Braskem, a Brazilian petrochemical company, was also amongst top performers, after several firms have voiced interest in buying out the company. Due to political uncertainty around the bidding process, we have exited the position fully and realized the gains. Argentinian software developer Globant was the top underperformer, which largely reflects a very strong performance in the previous month. Pagseguro, a fintech company in Brazil, and Mag Silver, a Mexican silver miner, also underperformed relatively and weighed on returns. GAP, the Mexican airport operator, was also amongst the top underperformers on a relative basis as investors are somewhat concerned around political noise regarding concession assets in Mexico.
We initiated a new position in Pagseguro. Pagseguro is a payments acquirer that charges merchants a fee for payment processing and these fees have not passed through the dramatic increase in the monetary policy rate. Pagseguro’s funding costs however already reflect higher interest rates, which means that their net margin (difference between fees charged and funding costs) has decreased significantly. Once interest rates start being cut, this effect reverses as merchant fees stay somewhat stable but funding costs trend down. We have funded this by reducing other financial rate plays that have performed better, such as XP and B3, the stock exchange in Brazil. We continued to build up our position size in Mag Silver, which we initiated last month. We exited Localiza after strong performance as they are seeing some headwinds from government subsidies for individual passenger car purchases (which indirectly compete with car leasing). The investment thesis on shopping mall Iguatemi has largely played out and we sold the position in full. We trimmed Petrobras, a state-owned Brazilian oil firm, locking in profits as the stock has done very well relative to the oil price. We also exited our position in CCR, transportation operator in Brazil, due to a less positive view on earnings.
Largest overweight from country perspective is in Argentina and Panama, and we are most underweight in Mexico and Peru. Sector wise, our largest overweight is in consumer discretionary and health care, while largest underweight is in utilities and communication services.
Outlook
In Brazil, monetary policy has been very restrictive and domestic activity has slowed down materially as a result. While the central bank has stayed conservative and kept interest rates high, inflation has continued to drop, reaching very low levels of 3.16% in June. Lower inflation, and more comfort around fiscal sustainability have improved market sentiment significantly in recent months; the market is now pricing in a sooner start of a monetary easing cycle. Monetary policy easing is the most important support for both the economy and the equity market.
Mexico remains defensive as both fiscal and the current accounts are in order however, concerns remain on how the market will behave if the US goes into a recession. Banxico has raised their interest rates to 11.25% and with inflation receding to just over 5%, they can stay on hold there before reducing rates later in the year. High interest rates have attracted financial flows in the form of carry trades and the Mexican peso has appreciated strongly year-to-date. Our underweight in Mexico is largely a result of locking in that strong performance in Q2.
In Peru, political uncertainty and social unrest will continue to weigh on market performance. The lack of support for the government and increased fragmentation in congress represent a difficult environment to form an effective government.
The recent constitutional election in Chile has resulted in a very strong outcome for the conservative, right-wing parties, in a sign that the population has lost confidence in the policies of leftist President Boric. We believe this is positive from a market perspective, as it should result in stronger checks & balances on the government and removes the risk of a radical new constitution. However, we have not yet increased our exposure because economic activity continues to be weak due to the hangover from past years’ pension withdrawals.
Political uncertainty in Colombia will continue to weigh on the stability of the country. Our top-down view on Colombia is cautious, although we see a slow improvement in macroeconomics the fiscal deficit is still large. The holdings we have in Colombia are stock specific.
We continue to have a negative view on the Argentinian economy as the govt policies of increasing the monetary base while being unwilling to devalue the currency creates large imbalances and inflation. Our off-benchmark positions in Argentina are not exposed to the domestic economy, they generate revenues from exports globally.
1Source: BlackRock, as of 30 June 2023.
To learn more about the BlackRock Latin American Investment Trust plc please follow this link: blackrock.com/uk/brla
