REG-BlackRock Latin American Investment Trust Plc: Portfolio Update

Blackrock Latin American Investment TrustAnnouncement

29/01/2025 16:30

The information contained in this release was correct as at 31 December
2024.  Information on the Company’s up to date net asset values can be
found on the London Stock Exchange Website at

https://www.londonstockexchange.com/exchange/news/market-news/market-news-home.html. 

 

BLACKROCK LATIN AMERICAN INVESTMENT TRUST PLC (LEI - UK9OG5Q0CYUDFGRX4151)

All information is at 31 December 2024 and unaudited.
 

Performance at month end with net income reinvested
 

                         One       Three      One      Three     Five      
                          month     months     year     years     years    
                          %         %          %        %         %        
 Sterling:                                                                 
 Net asset value^        -6.3      -14.7      -34.6    2.1       -25.3     
 Share price             -4.5      -13.4      -34.1    -0.9      -22.5     
 MSCI EM Latin America   -4.7      -9.9       -25.1    15.1      -10.8     
  (Net Return)^^                                                           
 US Dollars:                                                               
 Net asset value^        -7.7      -20.4      -35.7    -5.6      -29.4     
 Share price             -5.9      -19.2      -35.3    -8.4      -26.7     
 MSCI EM Latin America   -6.1      -15.8      -26.4    6.4       -15.7     
  (Net Return)^^                                                           

 

^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:                                         308.76p     
 Net asset value - including income:                                     314.41p     
 Share price:                                                            278.00p     
 Total assets#:                                                          £97.5m      
 Discount (share price to cum income NAV):                               11.6%       
 Average discount* over the month – cum income:                          12.4%       
 Net Gearing at month end**:                                             4.8%        
 Gearing range (as a % of net assets):                                   0-25%       
 Net yield##:                                                            8.0%        
 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 7.9% is calculated based on total dividends declared in the
last 12 months as at the date of this announcement as set out below (totalling
27.83 cents per share) and using a share price of 348.17 US cents per share
(equivalent to the sterling price of 278.00 pence per share translated in to
US cents at the rate prevailing at 31 December 2024 of $1.2524 dollars to
£1.00).

  

2023 Q4 Interim dividend of 8.05 cents per share (Paid on 09 February 2024)

2024 Q1 Interim dividend of 7.39 cents per share (Paid on 13 May 2024)

2024 Q2 Interim dividend of 6.13 cents per share (Paid on 08 August 2024)

2024 Q3 Interim dividend of 6.26 cents per share (Paid 08 November 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 2023.

 

 

 Geographic Exposure                            % of Total Assets  % of Equity Portfolio *  MSCI EM Latin America Index  
 Brazil                                         59.8               60.1                     61.4                         
 Mexico                                         35.7               35.8                     26.6                         
 Chile                                          4.1                4.1                      6.2                          
 Colombia                                       0.0                0.0                      1.4                          
 Peru                                           0.0                0.0                      4.4                          
 Net current Liabilities (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 5.3% of the Company’s net asset value.

 

 Sector                  % of Equity Portfolio*  % of Benchmark*  
 Financials              23.7                    31.3             
 Materials               21.7                    17.3             
 Consumer Staples        15.2                    14.2             
 Consumer Discretionary  12.9                    1.6              
 Industrials             8.1                     10.7             
 Energy                  7.6                     11.6             
 Health Care             6.6                     1.2              
 Real Estate             2.8                     1.1              
 Utilities               1.4                     6.7              
 Communication Services  0.0                     3.8              
 Information Technology  0.0                     0.5              
                         -----                   -----            
 Total                   100.0                   100.0            
                         =====                   =====            
                                                                  

*excluding net current assets & fixed interest

 

 Company                              Country of Risk  % of                % of         
                                                        Equity Portfolio    Benchmark   
 Vale:                                Brazil                                            
 ADS                                                   7.9                              
 Equity                                                1.2                 5.9          
 Petrobrás:                           Brazil                                            
 Equity                                                1.3                              
 Equity ADR                                            3.6                 4.7          
 Preference Shares ADR                                 2.7                 5.2          
 Grupo Financiero Banorte             Mexico           6.8                 3.3          
 Walmart de México y Centroamérica    Mexico           5.9                 2.7          
 Grupo México                         Mexico           4.5                 2.9          
 B3                                   Brazil           4.0                 1.8          
 Rede D'or Sao Luiz                   Brazil           3.8                 0.6          
 XP                                   Brazil           3.7                 0.9          
 Rumo                                 Brazil           3.3                 0.7          
 Cyrela Brazil Realty                 Brazil           3.2                 0.0          
                                                                                        

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

 

The Company’s NAV fell -6.3% in December, underperforming the benchmark,
MSCI Emerging Markets Latin America Index, which returned -4.7% on a net basis
over the same period. All performance figures are in sterling terms with
dividends reinvested.1

 

December was another lackluster month for emerging market equities, with the
MSCI Emerging Markets Index trading sideways (-0.3%). Notably however,
Emerging Markets outperformed Developed Markets as the MSCI World Index fell
sharply (-2.6%).

 

Latin America (-7.3%) was the worst performing region within Emerging Markets
for a second consecutive month, driven largely by Brazil (-9.9%). While the
depreciation of the BRL slowed in December, following intervention from the
Brazilian Central Bank (BCB), market concerns about worsening fiscal dynamics
remain center stage.

 

At the portfolio level, an overweight position to Mexico was the key positive
contributor to performance. On the other hand, stock picking in Brazil and
Chile detracted from performance.

 

From a security lens, an underweight position to Brazilian digital banking
platform provider, NU Holdings, was the biggest contributor to returns for a
second consecutive month. The stock fell as a result of market volatility in
Brazil and broker downgrades. As a consumer facing bank, Nubank might suffer
disproportionately from higher rates. An overweight position to B3, the
Brazilian stock exchange, was another contributor. The stock reacted
positively to news about a share buyback program. We believe that buybacks
will be a big feature in Brazil in 2025, considering the very cheap valuations
of most stocks. Our overweight to Walmart Mexico was also additive to relative
returns, helped by a dividend announcement in mid-December. Banorte, the
Mexican bank, was another contributor to returns over the period.

 

On the flipside, Brazilian healthcare operator Hapvida continued to weigh on
returns in December, primarily on the back of proposed regulatory changes.
These proposed changes could limit the ability to enact price increases for
health care operators. After speaking to several companies in the sector, we
believe the likelihood of these changes to be implemented is very low and are
thus holding on to our positions.

 

Another detractor over the period was Azzas 2154, the Brazilian footwear
retailer, which traded down with the Brazilian market. As a consumer
discretionary business, investors fear a future impact of rising rates on
their sales. An overweight position in EZ Tec, a Brazilian homebuilder, also
hurt performance. The stock has also been impacted by the recent interest rate
hikes from the Brazilian central bank.

 

We made some changes to the portfolio in December. In Mexico,  we added to
Grupo Mexico, a Mexican mining and transport conglomerate, reflecting a more
positive view on copper. We took profits and reduced our exposure to Mexican
airport operator Grupo Aeroportuario del Pacífico (GAPB) simply on valuation
grounds. We also rotated some exposure from Pinfra to convenience store
operator FEMSA, on the back of relative performance. In Brazil, we decreased
our exposure to more leveraged companies on the back of disappointing fiscal
news and higher rates. As such, we reduced our position in Rumo and topped up
in property developer Cyrela on the view that the balance sheet of the former
will be more impacted by the higher rates. We also added to iron ore producer
Vale as operations are improving and the cheaper currency helping their cost
base.

 

Mexico is the largest portfolio overweight as of November end. Brazil is our
second largest overweight. On the other hand, the largest underweight is Peru.
The second largest portfolio underweight is Chile. 

 

Outlook

 

We remain optimistic about the outlook for Latin America. While 2024 has been
a difficult year for the region, we are now entering 2025 with many asset
prices trading at attractive levels. Robust growth in the US paired with the
election of Donald Trump has catapulted bond yields in the US higher over the
recent months, despite the reduction in rates by the US central bank. This has
been a headwind for asset prices outside the US.

However, as contrarian investors, we always like to ask ourselves the
question, how much is already priced in?  We believe the answer to that
question is: a lot. In Brazil, many stocks trade on single-digit multiples
while paying double-digit dividend yields. For instance, Cyrela, the Brazilian
real estate developer and a big holding of ours, trades on 4x
price-to-earnings and pays an 11% dividend yield (consensus estimates). 5-year
inflation-protected bonds in Brazil now offer a yield north of 7% and 2 year
sovereign bonds have a nominal yield of circa 15%. The Brazilian real also 
declined by 23% in 2024, making Brazilian exports much more competitive.

 

However, there is a reason why Brazilian assets trade at these cheap
multiples. In Brazil, it is all about fiscal. While one can argue that the
primary deficit that the Brazilian government has achieved in 2024 is not that
bad relative to initial expectations, the quality of the result is
questionable. This outcome was largely driven by significant pressure from
financial markets and includes numerous one-off revenues. As a result, the
Brazilian government has lost credibility and local and foreign investors now
require a much higher return to keep lending to the government.

 

We remain firm believers in our macro process. In line with our process, we
believe that these elevated rates will lead to a decline in economic activity,
less pressure on inflation and thus lower interest rates down the line. This
in turn should lift the multiples of equities. At the same time, the currency
is supported by competitive exports and lower economic activity will keep a
lid on imports. Any improvement on the fiscal side would jumpstart a recovery
in asset prices and we think it is in the government’s interest to bring
rates down. However, as a result of these elevated rates, we have reduced our
exposure to levered companies within the country which we believe will fare
better in 2025.

 

Mexico is another country that struggled in 2024 in terms of asset price
performance, albeit for different reasons than Brazil. While in Brazil it is
all about fiscal, in Mexico the government has hurt asset price performance by
announcing a highly controversial judicial reform that raises question marks
about future judicial independence and the rule of law. Trump's election
victory and his vocal criticism of Mexico exacerbated the challenges later in
the year. However, similar to Brazil, we believe that much of this is already
reflected in the pricing of Mexican assets.

Due to the volatility that Mexico has faced in 2024, the Mexican central bank
has been relatively more cautious in reducing rates, finishing the year with
its benchmark rate still at 10%, even though inflation has receded to around
4%. We therefore see scope for rate cuts to accelerate in 2025 and support
asset price performance. Meanwhile, Banorte, one of Mexico’s largest lenders
and a key holding of ours, trades on 7x price-to-earnings and pays an 8%
dividend (consensus estimates). Furthermore, despite all the noise from the
Northern border, we do not see a change in the secular trend of nearshoring of
supply chains, even if Trump applies tariffs as a negotiation tactic. Mexico
therefore remains our biggest overweight in the portfolio.

 

1Source: BlackRock, as of 31 December 2024.

 

29 January 2025

 

ENDS

 

Latest information is available by typing www.blackrock.com/uk/brla on the
internet, "BLRKINDEX" on Reuters, "BLRK" on Bloomberg or "8800" on Topic 3
(ICV terminal).  Neither the contents of the Manager’s website nor the
contents of any website accessible from hyperlinks on the Manager’s website
(or any other website) is incorporated into, or forms part of, this
announcement.



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