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BlackRock Latin American IT: a gateway to an exciting market


Latin America is not a place that UK investors often dabble in. But as emerging markets go, the region, reaching from Mexico in the north to Argentina in the south, with a youthful and growing population of 650 million, most of those under the age of 30, is starting to muscle its way onto the world economic stage.

When the conquistadors travelled west from Spain and Portugal in the sixteenth century, they went looking for gold, the city of El Dorado (the Golden One), and although Cortés, Pizarro and their successors never found a town built entirely of the yellow metal, they did find incredible wealth in precious metals and commodities. Latin America remains a significant provider of agricultural commodities, oil and gas and metals and minerals. Just as the conquistadors delved for gold in the sixteenth century, Latin America is set to become one of the world’s most significant providers of the twenty-first century’s ‘new gold’ – lithium.

Latin America has rapidly industrialised and democratised, its nations are no longer the so-called ‘Banana Republics’ of the early twentieth century and by-and-large the rule of the people, not the fist of the junta has prevailed across the region. Regional infrastructure is much improved, and the territory is strategically located between the United States and Europe.

Exotic Investments

However, Latin America is not without its risks. Political instability is never that far away, and although the days of hyperinflation are passed (the rest of the world is getting a taste of what inflation can do to living standards), the region is still economically volatile with sporadic bouts of currency instability and more than its fair share of natural disasters. Business regulation is still not the same as in Europe or the US and endemic corruption still plagues many economies in the region. Moreover, although Latin America has a plethora of big companies, many of them are not well-known to UK investors with the region still being classed as an exotic investment destination.

Despite the drawbacks, Latin America can provide very attractive investment opportunities, however for a retail investor the most sensible route to market is through a managed fund or investment trust.

One of the most accessible options is the BlackRock Latin American Investment Trust [LON:BRLA], a GBP112m closed-ended investment trust managed by Sam Vecht, head of the Emerging Europe, Frontiers and LatAm team at BlackRock who has managed the fund since 2018. Vecht has been with the asset manager since 2000 and is assisted in the fund management by Christoph Brinkmann, who joined BlackRock in 2015.

The fund aims to secure long-term capital growth and an attractive total return primarily through investing in quoted securities in Latin America. When compared to the MSCI Emerging Markets Index it has outperformed on a Total Return basis by 233 percentage points since inception in 1990, returning 527% compared to 294% for the MSCI Emerging Markets Index.

Recent history has not been as kind to the fund however. On an annualised basis, the company’s NAV (including income) underperformed its benchmark, the MSCI EM Latin America Index four times out of five in years to end-March 2023.  In 2022/23 the fund returned -8.3% against a benchmark return of -4.7%. The year it beat the benchmark, 2020/21, the BlackRock Latin American Investment Trust returned 43% against a benchmark return of 35.3%

The fund has a large-cap growth bias. Its Top Five Holdings on 30th April were:

BlackRock Latin American Investment Trust top five holdings

Company    Weighting Country Sector
Grupo Financiero Banorte [BMV:GFNORTEO] 6.9% Mexico Financial Services
Vale [NYSE:VALE]     6.6% Brazil Mining
Fomento Economico Mexicano [BMX:FEMSA] 5.3% Mexico Beverages
Bank Bradesco [B3:BBDC]  5.1% Brazil Financial Services
Bolsa do Brasil (B3) [BVMF: B3SA3] 5.0% Brazil Stock Exchange

Source: Morningstar. Data from 30th April

Vecht explained in the investment trust’s latest client letter that the fund’s NAV was down by -1.7% in March, slightly underperforming the benchmark, which returned -1.3% on a net basis over the same period. The fund manager said that during the month, most of Latin America posted negative returns with only Mexico and Peru outperforming during March, with Mexico leading the pack on stronger than expected domestic consumption.

Brazil overweight

Vecht was caught out as the trust was underweight in Chile and Colombia, which had a negative effect on the portfolio’s relative returns and poor stock selection in Brazil contributed to underperformance. However CCR [B3:CCR] a toll-road operator in Brazil had done well, as did Ambev [B3:ABEV3] a Brazilian brewery and a name more familiar to The Armchair Trader readers, Chilean lithium mining company Sociedad Química y Minera de Chile [NYSE:SQM].

The fund remains keen on Brazil, and is willing to go off-benchmark if it sees a good opportunity, as evidenced by holdings in Argentina and Panama. The fund is less bullish on Mexico, Peru and Chile.

Latin America is still an exotic choice of market for most investors, but the BlackRock Latin American Investment Trust and others allow potential investors to dip a toe in the water with reduced risks. The investment trust can be bought as a share, and various platforms allow investment into different classes of fund.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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