REG-BlackRock Latin American Investment Trust Plc: Portfolio Update

Blackrock Latin American Investment TrustAnnouncement

14/02/2025 16:45

The information contained in this release was correct as at 31 January 2025. 
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 January 2025 and unaudited.
 

Performance at month end with net income reinvested
 

                         One       Three      One      Three     Five      
                          month     months     year     years     years    
                          %         %          %        %         %        
 Sterling:                                                                 
 Net asset value^        11.5      -3.0       -21.4    4.3       -12.5     
 Share price             11.2      -0.8       -20.7    3.3       -15.4     
 MSCI EM Latin America   10.4      0.5        -13.2    17.2      3.8       
  (Net Return)^^                                                           
 US Dollars:                                                               
 Net asset value^        10.6      -6.2       -23.3    -3.4      -17.5     
 Share price             10.3      -4.1       -22.6    -4.3      -20.3     
 MSCI EM Latin America   9.5       -2.8       -15.3    8.5       -2.2      
  (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:                                         344.21p     
 Net asset value - including income:                                     346.29p     
 Share price:                                                            305.00p     
 Total assets#:                                                          £107.4m     
 Discount (share price to cum income NAV):                               11.9%       
 Average discount* over the month – cum income:                          10.8%       
 Net Gearing at month end**:                                             5.1%        
 Gearing range (as a % of net assets):                                   0-25%       
 Net yield##:                                                            6.5%        
 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 6.5% is calculated based on total dividends declared in the
last 12 months as at the date of this announcement as set out below (totalling
24.70 cents per share) and using a share price of 378.98 US cents per share
(equivalent to the sterling price of 305.00 pence per share translated in to
US cents at the rate prevailing at 31 January 2025 of $1.2425 dollars to
£1.00).

   

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)

2024 Q4 Interim dividend of 4.92 cents per share (to be paid on 07 February
2025)

  

*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                                    62.9               63.0                     63.0                         
 Mexico                                    31.2               31.3                     25.2                         
 Chile                                     4.1                4.1                      6.2                          
 Multi-Country                             1.6                1.6                      0.0                          
 Colombia                                  0.0                0.0                      1.6                          
 Peru                                      0.0                0.0                      4.0                          
 Net current assets (inc. fixed interest)  0.2                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*  
 Materials               22.4                    16.6             
 Financials              22.0                    33.0             
 Consumer Staples        14.8                    13.2             
 Consumer Discretionary  14.1                    1.6              
 Industrials             8.0                     10.6             
 Energy                  7.6                     11.7             
 Health Care             7.0                     1.3              
 Real Estate             2.6                     1.1              
 Utilities               1.5                     6.8              
 Communication Services  0.0                     3.5              
 Information Technology  0.0                     0.6              
                         -----                   -----            
 Total                   100.0                   100.0            
                         =====                   =====            

 

*excluding net current assets & fixed interest


 Company                              Country of Risk  % of                % of         
                                                        Equity Portfolio    Benchmark   
 Vale:                                Brazil                                            
 ADS                                                   7.6                              
 Equity                                                1.2                 5.7          
 Petrobrás:                           Brazil                                            
 Equity                                                1.3                              
 Equity ADR                                            3.6                 4.8          
 Preference Shares ADR                                 2.7                 5.2          
 Walmart de México y Centroamérica    Mexico           5.3                 2.5          
 Grupo Financiero Banorte             Mexico           5.0                 3.2          
 Grupo México                         Mexico           4.9                 2.8          
 FEMSA:                               Mexico                                            
 ADR                                                   0.9                              
 Equity                                                3.4                 2.7          
 B3                                   Brazil           4.2                 1.9          
 Rede D'or Sao Luiz                   Brazil           4.1                 0.7          
 XP                                   Brazil           3.9                 0.9          
 Cyrela Brazil Realty                 Brazil           3.7                 0.0          
                                                                                        

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

 

The Company’s NAV rose +11.5% in January, outperforming the benchmark, MSCI
Emering Markets Latin America Index, which returned +10.4% on a net basis over
the same period. All performance figures are in sterling terms with dividends
reinvested.1

 

Emerging Markets (+1.8%) posted moderate gains in January, but still
underperformed Developed Markets which rose +3.6%. Latin America recorded a
strong recovery in January at +9.5%, led by Colombia (+21.2%). Chile also
performed well, rising by 8.8%. In Chile, the pension reform was approved by
the Chamber of Deputies with 110 votes in favour and 38 against, thereby
bypassing a mixed commission. The proposal now advances to the Constitutional
Court for review before it can be enacted into law. Brazil also saw a welcome
reversal after a tough 2024, outperforming both Latin America and broader
Emerging Markets by posting gains of +12.4% over the month.

 

At the portfolio level, stock selection in Brazil and an underweight to Peru
were the key positive contributors to performance. On the other hand, an
overweight to Mexico and an underweight to Colombia hurt.

 

From a security lens, a collection of domestic Brazilian names did well. The
biggest contributor to returns over the month was an overweight to Cyrela, the
Brazilian real estate developer. The company rose on the back of strong fourth
quarter 2024 operating data that showed a +90% increase in sales year-on-year.
Another stock that did well was Azzas 2154, the Brazilian footwear retailer,
rising with the Brazilian stock market. Not owning Mexican telecom company
América Móvil was also additive, as the stock declined following broker
downgrades. An overweight position in EZ Tec, a Brazilian homebuilder, also
helped as the stock bounced back following a weak December.

 

On the flipside, an overweight position in Becle, a Mexican tequila producer,
was the largest detractor on the back of disappointing sales volumes in the US
and poor fourth quarter 2024 guidance from the company. Our underweight to NU
Holdings, a Brazilian digital banking platform provider, was another
detractor. While the underweight has been additive to returns over the past
months, the stock rebounded somewhat along with the Brazilian market. An
overweight to Walmart Mexico also hurt returns in January, as the consumption
outlook in Mexico remains lacklustre.

 

We made few changes to the portfolio in January. In Mexico, we rotated some
exposure from Banorte to convenience store operator FEMSA. FEMSA has
underperformed, but is a defensive position with a sizeable USD cash position
on its balance sheet. We initiated a position in Ero Copper, which is a
Canadian copper miner with their main operations in Brazil, reflecting the
team's positive view on the commodity. We also exited IRB, the Brazilian
reinsurance company, after the stock reached our target price.

 

Mexico is the largest portfolio overweight as at the end of January. 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 two 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.

 

The portfolio is underweight the rest of Latin America to fund these high
conviction positions in Brazil and Mexico. Peru, Chile and Colombia have all
seen the benefits of lower interest rates in 2024. In our view, Mexico is
bound to catch up to that and Brazil is so cheap that any minor improvement
could result in a market rally. We are also firm believers that investing in
Latin America demands patience and the ability to hold and increase portfolio
positions when others in the market are retreating.

 

Regarding Argentina, we are happy to see that the country is back on a path
towards economic orthodoxy, which we believe will significantly benefit
society in the medium term. We also acknowledge that we have been too
sceptical regarding what Milei will achieve in his first year in power.
However, part of the government's strategy involves tolerating an overvalued
exchange rate to achieve the primary goal of keeping inflation low. This
approach comes at the expense of accumulating much-needed US dollar reserves.
The fact that Argentinians are traveling to neighbouring countries such as
Chile, Uruguay, and Brazil for holidays is a classic sign that the exchange
rate may be misaligned. The government is aware of this and is pursuing their
policy for a reason, but we believe the situation is very delicate, and we are
uncertain whether all foreign investors are fully aware of the risks involved.

 

1Source: BlackRock, as of 31 January 2025.

 

14 February 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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