BlackRock Latin American Investment Trust NAV returned 3.9%

BlackRock

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

All information is at 31 May 2021 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^3.912.032.42.947.3
Share price0.07.828.68.345.0
MSCI EM Latin America
(Net Return)^^
5.215.229.22.447.9
US Dollars:
Net asset value^6.413.551.99.743.3
Share price2.49.447.615.441.2
MSCI EM Latin America
(Net Return)^^
8.017.248.59.444.5

^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:422.90p
Net asset value – including income:425.26p
Share price:375.00p
Total assets#:£184.3m
Discount (share price to cum income NAV):11.8%
Average discount* over the month – cum income:10.6%
Net gearing at month end**:10.9%
Gearing range (as a % of net assets):0-25%
Net yield##:4.8%
Ordinary shares in issue(excluding 2,181,662 shares held in treasury):39,259,620
Ongoing charges***:1.1%

#Total assets include current year revenue.

##The yield of 4.8% is calculated based on total dividends declared in the last 12 months as at the date of this announcement as set out below (totalling 25.44 cents per share) and using a share price of 531.69 US cents per share (equivalent to the sterling price of 375.00 pence per share translated in to US cents at the rate prevailing at 31 May 2021 of $1.41784 dollars to £1.00).

2020 Q2 interim dividend of 5.57 cents per share (paid on 11 August 2020).
2020 Q3 interim dividend of 5.45 cents per share (paid 09 November 2020).
2020 Q4 Final dividend of 7.45 cents per share (paid on 08 February 2021).
2021 Q1 interim dividend of 6.97 cents per share (paid on 10 May 2021).

*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.
*** Calculated as a percentage of average net assets and using expenses, excluding interest costs for the year ended 31 December 2020.

Geographic
Exposure
% of
Total Assets
% of Equity Portfolio *MSCI EM Latin America Index
Brazil62.462.164.9
Mexico24.424.323.2
Chile9.19.15.8
Argentina2.92.81.6
Peru1.71.72.7
Colombia0.00.01.8
Net current liabilities
(inc. fixed interest)
-0.50.00.0
—–—–—–
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 10.4% of the Company’s net asset value.

Sector% of Equity Portfolio*% of Benchmark*
Materials25.025.4
Financials23.023.9
Industrials9.55.7
Consumer Discretionary9.05.7
Energy6.58.9
Consumer Staples6.314.6
Health Care5.92.7
Communication Services5.26.4
Information Technology4.41.8
Real Estate3.20.6
Utilities2.04.3
—–—–
Total100.0100.0
==========

*excluding net current assets & fixed interest


Company
Country of Risk% of
Equity Portfolio
% of
Benchmark
Vale – ADSBrazil9.913.2
Banco Bradesco – ADRBrazil7.74.7
Petrobrás – ADR:Brazil
   Equity4.12.9
   Preference Shares2.43.7
América Movil – ADRMexico5.24.1
Grupo Financiero BanorteMexico3.82.7
B3Brazil3.63.1
Notre Dame Intermedica ParticipaçõesBrazil3.21.3
Walmart de México y CentroaméricaMexico3.22.6
Cemex – ADRMexico3.11.9
Grupo MéxicoMexico2.72.3

Commenting on the markets, Ed Kuczma and Sam Vecht, representing the Investment Manager noted;

For the month of May 2021, the Company’s NAV returned 3.9%1 with the share price remaining flat1. The Company’s benchmark, the MSCI EM Latin America Index, returned 5.2%1 on a net basis (all performance figures are in sterling terms with dividends reinvested).

Latin American (LatAm) equities posted positive performance over the month with Peru and Brazil leading the rise.

Allocation in Colombia contributed the most to relative performance over the period while allocation in Chile detracted most from relative returns. The off-benchmark holding in the Brazilian logistics company, Santos Brasil, was the top contributor on a relative basis as the stock outperformed driven by strength in container handling volumes and the announcement of a long-awaited contract renegotiation with their largest client that allowed for noticeable pricing gains. An overweight position in the Brazilian bank, Banco Bradesco, also benefitted the portfolio as the stock has been a beneficiary of an upward revision to Brazilian GDP (Gross Domestic Product) estimates, which should lead to improving loan growth and positive portfolio mix toward a more profitable lending profile.  On the other hand, an overweight position in Sociedad Quimica y Minera, a Chilean chemical company, detracted most from relative performance as the Lithium sector in Chile is coming under scrutiny as a target for higher taxation in the country to pay for additional social programs. An overweight position in Suzano, a Brazilian pulp and paper company, also weighed on relative returns as leading indicators continue to show reduced support for pulp price momentum after the company had seen the strongest rally in history.

Over the month we added to Credicorp, a Peruvian financial services company, on the view that political uncertainty is creating opportunity for long-term alpha generation. The country was in the midst of a tightly contested Presidential election which created a great deal of uncertainty and caused a sharp depreciation in the currency, despite favorable external conditions from high metal prices. We believe fears of radical changes to the favorable institutional framework of the company are overdone and are looking to add exposure on the back of the volatility created by political uncertainty.  We initiated a position in Neoenergia, a Brazilian electric services company, based on attractive long-term growth prospects for the firm combined with the stock price presenting attractive discounts to historical averages for the stock. We reduced our exposure to Brazilian pulp and paper company, Suzano, given the low conviction that pulp prices will remain as buoyant in the second half of 2021 given that leading indicators continue to show reduced support for pulp price momentum after the strongest rally in history. We sold our holding of Pagseguro Digital, a Brazilian e-commerce company, as intensifying competition going forward is expected and the high valuation is not supportive for the investment case given earnings headwinds. The portfolio ended the period being overweight to Chile and Mexico, whilst being underweight to Colombia and Peru. At the sector level, we are overweight industrials and consumer discretionary, and underweight consumer staples and utilities.

While the recovery gains traction, a more nuanced picture emerges among Latam countries. Dealing with a prolonged shock is proving to be a challenge, and while the cyclical rebound somehow levels the short-term narratives, prospects beyond 2021 reveal a more nuanced picture. Our country positioning favors countries with better fundamentals, which display a healthier sovereign credit profile and are better placed to benefit from the strong rebound in the US and China. We see Chile and Mexico meeting these criteria, while more indebted and less open economies, such as Argentina, Brazil, and Colombia may struggle to sustain above-trend growth. The COVID-19 crisis led to a jump in public sector debt. Economies with a weak starting point on debt metrics saw debt-to-GDP ratios soar, with Brazil and Argentina reaching a threshold where debt dynamics turn into a real concern, in our view. These countries now have limited room for any additional fiscal policy support and we could argue the same about Colombia, despite lower debt levels. In Chile and Mexico, debt is at less worrisome levels and the current fiscal outlook points to manageable debt-to-GDP over the coming years. The external environment remains supportive for Latam. The continuation of the global V-shaped recovery should be led by a robust capex cycle going forward, meaning continued support for currently high commodity prices. This is key to the growth performance for the region but especially beneficial for Mexico and is likely to help Chile to sustain above-average expansion. Commodity champions, such as Argentina, Brazil and Colombia will also benefit from this external push, but the traction generated for these less open and domestic-driven economies is a fraction of the positive impact expected for more open economies. In spite of the current rebound, important idiosyncratic risks remain. These risks mainly relate to the growing strength of unorthodox policy ideas in a region historically marked by significant inequality. The political calendar concentrates a number of key electoral events from now to the end of 2022, and it is reasonable to expect a growing debate around proposals which would increase state intervention and government spending. Whether these proposals, and the candidacies backing them, will get rewarded by voters is hard to say, but in the aftermath of the COVID-19 shock, this may prove the key question for Latam going forward.

1Source: BlackRock, as of 31 May 2021.

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

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