BRLA Blackrock Latin American Investment Trust Plc

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
 

^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

#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.

^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.

*excluding net current assets & fixed interest

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.