BlackRock Latin American Investment Trust strong performance and strategic adjustments

BlackRock Latin American Investment Trust plc (LON:BRLA) has announced its latest portfolio update.

All information is at 30April2023 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^2.2-5.43.455.6-3.8
Share price-0.1-7.9-7.048.7-1.3
MSCI EM Latin America
(Net Return)^^
1.0-4.94.959.93.8
US Dollars:
Net asset value^3.8-3.43.655.2-12.1
Share price1.6-6.0-6.848.3-9.9
MSCI EM Latin America
(Net Return)^^
2.7-2.95.059.3-5.2

^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:401.56p
Net asset value – including income:405.27p
Share price:348.00p
Total assets#:£125.6m
Discount (share price to cum income NAV):14.1%
Average discount* over the month – cum income:12.4%
Net gearing at month end**:3.8%
Gearing range (as a % of net assets):0-25%
Net yield##:8.6%
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 8.6% is calculated based on total dividends declared in the last 12 months as at the date of this announcement as set out below (totalling 37.32 cents per share) and using a share price of 437.40 US cents per share (equivalent to the sterling price of 348.00 pence per share translated in to US cents at the rate prevailing at 30 April 2023 of $1.2569 dollars to £1.00).
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).
2023 Q1 Interim dividend of 6.21 cents per share (Payable on 16 May 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
Brazil60.961.757.9
Mexico26.126.531.5
Chile5.25.36.4
Argentina3.33.40.0
Panama1.91.90.0
Colombia1.21.21.1
Peru0.00.03.1
Net current Assets(inc. fixed interest)1.40.00.0
—–—–—–
Total100.0100.0100.0
===============

^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 5.2% of the Company’s net asset value.

Sector% of Equity Portfolio*% of Benchmark*
Financials26.625.1
Materials18.221.4
Consumer Staples14.216.7
Industrials13.29.1
Energy10.29.9
Real Estate4.80.7
Consumer Discretionary4.61.8
Health Care3.51.5
Communication Services2.87.1
Information Technology1.90.4
Utilites0.06.3
—–—–
Total100.0100.0
==========

*excluding net current assets & fixed interest


Company
Country of Risk% of
Equity Portfolio
% of
Benchmark
Petrobrás – ADR:Brazil
   Equity5.83.5
   Preference Shares2.94.0
Grupo Financiero BanorteMexico6.84.0
Banco Bradesco – ADR:Brazil
   Equity4.90.7
   Preference Shares1.72.6
Vale – ADSBrazil6.59.8
FEMSA – ADRMexico5.23.4
B3Brazil4.92.5
AmBev – ADRBrazil3.52.4
Itaú Unibanco – ADRBrazil3.44.5
Grupo Aeroportuario del Pacifico – ADSMexico2.91.1
Gerdau – Preference sharesBrazil2.81.0

Commenting on the markets, Sam Vecht and Christoph Brinkmann, representing the Investment Manager noted;

The Company’s NAV was up by 2.2% in April, outperforming the benchmark, the MSCI Emerging Markets Latin America Index, which returned 1.0% on a net basis over the same period. All performance figures are in sterling terms with dividends reinvested.1

Latin American countries posted mostly positive returns in April, led by Colombia (USD +5.4%m/m), Argentina (USD +3.8%m/m), Brazil (USD 3.4%m/m), Mexico (USD +2.6%m/m. The laggard was Chile (USD -2.1%m/m).

On a country level, the largest contributor was Brazil, our stock selection there has performed well. And our underweight in Chile has helped relative returns. Mexico and Argentina were the top negative contributors, our off-benchmark name in Argentina pulled back a bit and stock selection in Mexico underperformed.

On an issuer level, Brazilian financials were amongst the top contributors in April, specifically IRB, a reinsurance company, B3, the Brazilian stock exchange, and XP, an investment management company. The sector performed well on the back of a broader bounce-back in the Brazilian stock market. Material names have underperformed as the Chinese commodity demand has disappointed relative to high expectations driven by the re-opening narrative. While consumption has recovered, the property market is still struggling. The portfolio has benefitted from this by being underweight to Sociedad Quimica y Minera de Chile, a Chemicalcompany in Chile, and Vale, the Brazilian mining company.

On the other hand, our holding in CMPC, the Chilean pulp and paper company, weighed on returns. The company underperformed due to a rapid decline in pulp prices partly due to the weaker than expected demand from China but also due to new capacity coming online. Assai, the Brazilian supermarket chain, also detracted from performance during the month. The stock price continued to see some pressure due to operational headwinds from lower food inflation paired with a heavily-leveraged balance sheet. GAP detracted as Mexican airport operators struggled during April on the back of the Mexican government proposing an administrative reform that would make it easier for them to terminate concessions with private companies. However, we have added to the name as we think that these concerns are overblown, and rule of law will prevail.

We have reduced our holding in CCR, the Brazilian transportation company and IRB, to take some profit in Brazil. We reduced our holding in Vale and switched the capital into Gerdau, a steel producer in Brazil, as operating momentum and cash generation for Gerdau looks strong, and we see a potential for a special dividend this year. We reduced our position in Bancolombia as we view the recent cabinet changes in Colombia as a negative development. We topped up exposure to Iguatemi, a real estate development company in Brazil, as retail trends in 1Q23 continue to be strong based on industry data.

In terms of positioning, our largest overweight is Brazil, and we hold off-benchmark names in Argentina and Panama. Mexico and Peru are our largest underweights.

Outlook

Mexico remains defensive as both fiscal and the current account are in order however, concerns remain on how the market will behave if the US moves into a recession. Banxico has raised their interest rates to 11.25% and with inflation receding to 6%, 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 lower allocation in Mexico is largely a result of locking in that strong performance.

Leftist President Petro in Colombia has surprised the market in April by removing the majority of his cabinet, including the orthodox Finance Minister, who has been the last point of trust and stability from a market perspective. We believe this is a sign that Petro will act more radical going forward and as such we have reduced our exposure.

In Brazil, domestic activity has slowed down materially as monetary policy is very restrictive. Inflation has already declined significantly to 4.2%, which means that the policy rate can likely be lowered from the current level of 13.75% over the next six months. The government’s fiscal framework is more orthodox versus market expectations, which helps to reduce uncertainty regarding the fiscal outlook and is key for the central bank to start reducing rates. A reduction in interest rates is the most important support for both the economy and the equity market.

1Source: BlackRock, as of 30 April 2023.

To learn more about the BlackRock Latin American Investment Trust plc please follow this link: blackrock.com/uk/brla  

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