BlackRock Latin American Investment Trust Plc - Portfolio Update

BlackRock Latin American Investment Trust Plc - Portfolio Update

PR Newswire

LONDON, United Kingdom, July 19

The information contained in this release was correct as at 30 June 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 30 June 2024 and unaudited.
 

Performance at month end with net income reinvested
 

	One month %	Three months %	One year %	Three years %	Five years %
Sterling:
Net asset value^	-8.2	-16.1	-13.9	2.1	-11.5
Share price	-6.0	-12.4	-9.3	2.8	-9.6
MSCI EM Latin America (Net Return)^^	-5.4	-12.3	-5.0	12.4	1.4
US Dollars:
Net asset value^	-8.9	-16.1	-14.4	-6.6	-12.1
Share price	-6.7	-12.4	-9.8	-6.0	-10.2
MSCI EM Latin America (Net Return)^^	-6.1	-12.2	-5.6	2.9	0.7

 

^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:	380.34p
Net asset value - including income:	387.73p
Share price:	346.00p
Total assets#:	£128.8m
Discount (share price to cum income NAV):	10.8%
Average discount* over the month – cum income:	9.7%
Net Gearing at month end**:	11.4%
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 6.9% is calculated based on total dividends declared in the last 12 months as at the date of this announcement as set out below (totalling 28.59 cents per share) and using a share price of 437.38 US cents per share (equivalent to the sterling price of 346.00 pence per share translated in to US cents at the rate prevailing at 30 June 2024 of $1.264 dollars to £1.00).

2023 Q3 Interim dividend of 7.02 cents per share (Paid on 09 November 2023)

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 (To be paid on 13 August 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	58.4	59.1	58.8
Mexico	31.0	31.3	29.5
Chile	3.8	3.8	6.1
Argentina	2.2	2.2	0.0
Colombia	2.0	2.1	1.4
Panama	1.4	1.5	0.0
Peru	0.0	0.0	4.2
Net current Assets (inc. fixed interest)	1.2	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 12.8% of the Company’s net asset value.

 

Sector	% of Equity Portfolio*	% of Benchmark*
Financials	26.2	25.3
Consumer Staples	16.5	16.5
Industrials	15.4	10.5
Materials	12.4	18.3
Consumer Discretionary	10.4	1.6
Energy	10.1	13.7
Health Care	4.0	1.5
Real Estate	2.6	1.1
Information Technology	2.2	0.6
Communication Services	0.2	4.2
Utilites	0.0	6.7
	-----	-----
Total	100.0	100.0
	=====	=====

*excluding net current assets & fixed interest

 

Company	Country of Risk	% of Equity Portfolio	% of Benchmark
Petrobrás:	Brazil
Equity		2.1
Equity ADR		5.6	4.9
Preference Shares ADR		2.4	6.0
Vale	Brazil
ADS	Brazil	7.4
Equity	Brazil	0.9	7.0
Grupo Financiero Banorte	Mexico	7.2	3.7
Walmart de México y Centroamérica	Mexico	5.8	3.3
Banco Bradesco:	Brazil
Equity ADR		3.9	0.6
Preference Shares		1.7	2.2
B3	Brazil	4.4	1.9
Grupo Aeroportuario del Pacifico – ADS	Mexico	4.1	1.1
Itaú Unibanco – ADR	Brazil	3.3	5.2
Hapvida Participacoes	Brazil	3.1	0.6
Lojas Renner	Brazil	2.9	0.4

 

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

 

The Company’s NAV returned -8.2% in June, underperforming the benchmark, MSCI Emerging Marekets Latin America Index, which returned -5.4% on a net basis over the same period. All performance figures are in sterling terms with dividends reinvested.1

 

Emerging Markets (+3.9%) outperformed Developed Markets (+2.0%) in June. Latin America (-6.1%) lagged the rest of Emerging Markets, and was the only region to post negative returns with all markets in the red. Argentina (-10.7%) and Mexico (-10.6) were the main drivers of this decline, where the underperformance of the latter was driven by political concerns post-election. Brazil was the best performer with a -3.7% month on month return.

 

At the portfolio level, our exposure to a non-domestic IT services company in Argentina and a precious metals exposure in Ecuador were the key positive contributors to performance. On the other hand, stock picking in Brazil and Mexico impacted performance during the month. In addition, it is worth highlighting that the index performance has been quite weak during the month of June. Since the Company usually employs gearing, one should expect the portfolio to underperform during index downturns (and outperform during upturns).

 

From a security lens, an off-benchmark holding in IT services company, Globant was the largest contributor to returns. While the company is domiciled in Argentina, it largely generates revenues from US tech spending and results from peers suggest that said spending is holding up well. Not owning Mexican cement producer Cemex and our underweight position to Mexican mining company, Grupo Mexico also contributed to performance. The Mexican market declined more broadly on concerns around less checks and balances following Sheinbaum's landslide win in the elections in early June. Another contributor over the period was our overweight position in Brazilian logistics company Rumo. The company's May 2024 volumes surprised to the upside which was a positive for the stock.

 

On the flipside, an overweight position in Mexican airport operator, Grupo Aeroportuario del Pacífico (GAPB) was the biggest detractor in June on the back of Sheinbaum's land slide win and market concerns around the resulting strong majority. Another detractor during the month was our overweight position in Brazilian supermarket chain, Assai. This is a highly levered company whose performance has been impacted by the delay in the rate cutting cycle from the Brazilian Central Bank. A lack of exposure to Brazilian electric equipment firm, WEG also hurt returns. WEG’s share price rose on the back of news of Robert Bosch's takeover of Whirlpool, for which WEG is a key supplier. As an exporter, the depreciation of the Brazilian Real likely also helped the share price.

 

We made few changes to the portfolio in June. We exited our position in Lundin Gold as the investment thesis had largely played out. This stock has been among the top contributors in the portfolio year-to-date. We rotated capital within Brazil, from beverage company Ambev to CCR, a road and transport infrastructure operator in Brazil, to reflect analyst conviction. In Mexico, we took advantage of the significant sell-off following the election and topped up our holding in Banorte. We do not believe that the election outcome will have a meaningful impact on the earnings of Banorte.

 

Brazil is the largest portfolio overweight as of the end of June. Mexico is our second largest overweight. On the other hand, we remain underweight in Peru due to its political and economic uncertainty. The second largest portfolio underweight is Chile.

 

Outlook

 

We remain optimistic about the outlook for Latin America. Central banks have been proactive in increasing interest rates to help control inflation, which has fallen significantly across the region. As such we have started to see central banks beginning to lower interest rates, which should support both economic activity and asset prices. In addition, 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.  

 

Brazil is the highlight of this thesis, with the central bank having already cut the policy rate considerably. We still anticipate further reductions, particularly if the U.S. Federal Reserve starts to reduce its own interest rate. During the month of June, investors have become increasingly concerned about the fiscal trajectory of Brazil. This was partially sparked by a higher than expected fiscal deficit in the month of June. After carefully examining the data, we believe that the market is overreacting. The fiscal expenditure year-to-date looks artificially high because the government has decided to accelerate some of the spending that was planned over the full year into 1H24. We therefore expect better fiscal results over the next few months, which should help in bringing both the currency and the interest rates back down.

 

We remain positive on the outlook for the Mexican economy as it is a key beneficiary of the friend-shoring of global supply chains. Mexico remains defensive as both fiscal and the current accounts are in order. The outcome of the presidential elections in early June has created a lot of volatility for Mexican financial assets, with the Peso depreciating significantly. Investors are concerned that the landslide win of president-elect Sheinbaum and the Morena party will result in reduced checks and balances for the government and potentially detrimental judicial reforms. We have visited Mexico in the week after the election to meet with investors, business owners and political advisors. Our conclusion from that trip is that we believe the government will remain relatively pragmatic and fiscally prudent, as it has been during Andrés Manuel López Obrador’s presidency . We have therefore used the market correction to add to certain positions.

 

We continue to closely monitor the political and economic situation in Argentina, after libertarian Javier Milei unexpectedly won the presidential elections in November. Milei is facing a very difficult situation, with inflation around 270% year-on-year, FX reserves depleted and multiple economic imbalances. To further gauge sentiment on the ground, we travelled to the country in January. The trip further instilled our cautious view on the economic outlook for the country, and we see no fundamental reasons as to why we would want to buy this market now. We have become incrementally more cautious on Argentina over the past month, as the weakening of the informal exchange rate suggests that the official exchange rate might be overvalued. Therefore we see the risk of another exchange rate devaluation, which could reignite inflationary pressures.

 

We acknowledge the strengths of the data in the United States at the beginning of the year, but we believe that, ultimately, the domestic economic outlook in the Latin American countries will be the key driver of local interest rates. We therefore maintain conviction in the portfolio’s positioning in rate-sensitive domestic stocks. In addition, our view of a softer US labor market and further disinflation seems to be playing out, as evidenced by the recent rise in jobless claims and the relatively benign inflation data in May and June. As a result, the pressure from higher rates in the US is easing.

 

1Source: BlackRock, as of 30 June 2024.

 

19 July 2024

 

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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