The information contained in this release was correct as at 31 July 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 July 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^      -1.7  -13.7  -19.7 7.2   -15.3

Share price           0.5   -8.5   -16.4 10.4  -13.5

MSCI EM Latin America
                      -0.6  -10.4  -9.1  17.3  -3.1
(Net Return)^^

US Dollars:

Net asset value^      -0.2  -11.5  -19.9 -1.0  -11.1

Share price           2.1   -6.2   -16.6 2.0   -9.1

MSCI EM Latin America
                      1.0   -8.1   -9.3  8.3   1.6
(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:                             373.97p

Net asset value - including income:                         376.55p

Share price:                                                343.00p

Total assets#:                                              £125.7m

Discount (share price to cum income NAV):                   8.9%

Average discount* over the month – cum income:              10.2%

Net Gearing at month end**:                                 13.4%

Gearing range (as a % of net assets):                       0-25%

Net yield##:                                                6.5%

Ordinary shares in issue(excluding 2,181,662 shares held in 29,448,641
treasury):

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 28.59 cents per share) and using a share price of 440.57 US cents per share (equivalent to the sterling price of 343.00 pence per share translated in to US cents at the rate prevailing at 31 July 2024 of $1.285 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 MSCI EM Latin America
                                      Portfolio * Index

Brazil              58.9              58.8        59.2

Mexico              31.2              31.2        29.2

Chile               3.6               3.6         5.9

Colombia            2.1               2.1         1.5

Argentina           2.1               2.1         0.0

Panama              1.4               1.4         0.0

Multi-International 0.8               0.8         0.0

Peru                0.0               0.0         4.2

Net current
Liabilities (inc.   -0.1              0.0         0.0
fixed interest)

                    -----             -----       -----

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 13.3% of the Company’s net asset value.

 

Sector                 % of Equity Portfolio* % of Benchmark*

Financials             25.6                   25.4

Industrials            15.4                   10.7

Consumer Staples       15.2                   16.4

Materials              13.4                   17.9

Consumer Discretionary 10.3                   1.7

Energy                 9.7                    13.3

Health Care            5.4                    1.5

Real Estate            2.7                    1.2

Information Technology 2.1                    0.5

Communication Services 0.2                    4.1

Utilities              0.0                    7.3

                       -----                  -----

Total                  100.0                  100.0

                       =====                  =====

* excluding net current assets & fixed interest

 

                                   Country of Risk % of             % of
Company                                            Equity Portfolio Benchmark

Petrobrás:                         Brazil

Equity                                             2.0

Equity ADR                                         5.4              4.9

Preference Shares ADR                              2.3              5.7

Vale                               Brazil

ADS                                Brazil          7.1

Equity                             Brazil          0.9              6.7

Grupo Financiero Banorte           Mexico          5.7              3.5

Walmart de México y Centroamérica  Mexico          5.6              3.2

Banco Bradesco:                    Brazil

Equity ADR                                         3.8              0.6

Preference Shares                                  1.7              2.1

B3                                 Brazil          4.5              2.0

Grupo Aeroportuario del Pacifico – Mexico          4.2              1.1
ADS

Itaú Unibanco – ADR                Brazil          3.4              5.3

Hapvida Participacoes              Brazil          3.2              0.6

MAG Silver Corp                    Mexico          3.1              0.0

 

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

 

The Company’s NAV fell by -1.7% in July, underperforming the benchmark, MSCI Emerging Markets Latin America Index, which returned -0.6% on a net basis over the same period. All performance figures are in sterling terms with dividends reinvested. 1

 

Emerging Markets were flat over the month, underperforming Developed Markets (+1.7%) despite an improving macroeconomic backdrop. Whilst dollar weakness and an increasing likelihood of Fed (Federal Reserve) easing in September were supportive, increasing geopolitical tension and tariffs post US elections weighed on sentiment. Latin America (+0.9%) outperformed Emerging Markets in July. Brazil saw a bit of an inflection, gaining +1.2% over the month as May data was resilient, however, rising inflation expectations and resilient growth has resulted in a more hawkish position from the central bank.

 

At the portfolio level, our stock selection in Mexico and an exposure to a non-domestic IT services company in Argentina were the key positive contributors to performance during the month. On the other hand, stock picking in Brazil and Chile impacted performance in June. In addition, it is worth highlighting that as the investment trust usually employs gearing, one should expect the portfolio to underperform during index downturns (and outperform during upturns).

 

From a security lens, Mexican silver miner, MAG Silver, was the best performing stock. The company reported decent second quarter results and revised up guidance for the full year 2024. An off-benchmark holding in IT services company, Globant, continued to perform well in July and was another significant contributor to performance. An overweight position in Brazilian truck leasing company, Vamos, also helped returns as the business is geared into an economic recovery in Brazil. Another strong contributor was Mexican airport operator, Grupo Aeroportuario del Pacífico (GAPB), whose performance in July rebounded from lows partly driven by the strengthening of the Mexican Peso.

 

On the flipside, a lack of exposure to Brazilian electric equipment firm, WEG, was the largest detractor to performance over the month after the company reported strong second quarter margin performance results. Another detractor during the month was our overweight position in Becle, a Mexican producer and supplier of alcoholic beverages. Although the company reported a second quarter margin beat and better than expected profits, the decline in sales volumes was perceived negatively by the market. We continue to like the stock and believe it can outperform on a 12-month horizon. IRB, the Brazilian reinsurance company also hurt returns in July.

 

We made few changes to the portfolio in July. Within Brazil, we reduced our position in beverage company, Ambev and topped up our holding in hospital chain, Rede D'or (to align with analyst conviction). We are positive on the health care sector more broadly as price hikes are above inflation, thus restoring margins. We also took profits and trimmed our exposure to Rumo, the Brazilian logistics company, after strong relative performance. We initiated a holding in StoneCo, a financial technology and software solutions provider. We see potential for earnings upgrades on the back of strong payment volumes in Brazil.

 

Brazil is the largest portfolio overweight as of the end of July. Mexico is our second largest overweight. On the other hand, we remain underweight to 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. Over the past two months, 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 AMLO’s (President Andrés Manuel López Obrador)term. 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 2023. 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 2024. 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 official exchange rate might be overvalued. Therefore we see the risk of another exchange rate devaluation, which could reignite inflationary pressures.

 

The recent data in the United States supports our thesis that the US labour market is slowing down, enabling the Fed to start easing interest rates in September 2024. This should be supportive for Emerging Market carry countries, including Latin America.

 

1 Source: BlackRock, as of 31 July 2024.

 

19 August 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.