BlackRock Latin American Inv. Trust: Strong Start To The Year For Latin America
Edison Group | Mar 04, 2022 06:05
BlackRock (NYSE:BLK) Latin American Investment Trust’s (BRLA)) two experienced managers, Ed Kuczma and Sam Vecht, remain positive on the outlook for Latin American equities, with Kuczma commenting that the region is ‘under-owned, undervalued and unloved’. He says that the year-to-date stock market rally in Latin America is a good example of how quickly investor sentiment can change, especially given the global environment of rising interest rates. Kuczma points to the move from growth to value stocks, commenting that the region ‘has a ton of value’.
NAV in line with the benchmark over 10 years to end-February 2022
Fund objective
BlackRock Latin American Investment Trust seeks long-term capital growth and an attractive total return, primarily through investing in quoted Latin American securities. The trust was launched in 1990 and management was transferred to BlackRock on 31 March 2006 following a tender process. The managers follow a mainly bottom-up approach (taking top-down views into account) that is flexible but seeks growth at a reasonable price. The trust has an indefinite life subject to a two-yearly continuation vote. The benchmark is the MSCI Emerging Markets Latin America Index.
Bull points
■ Diversified Latin American equity exposure from a fund run by two very experienced managers.
■ Defined dividend policy and attractive yield.
■ Latin America is attractively valued compared with other regions and its own history.
Bear points
■ Higher political and currency risk in Latin America than in developed economies.
■ Latin American equity market can be volatile.
■ Latin America is less well researched compared with developed markets.
The analyst’s view
The Latin American stock market has had a very strong relative start to the year, led by Brazil, as investors have reassessed the region’s prospects. As at 28 February 2022, the MSCI Emerging Markets (NYSE:EEM) Latin America Index had appreciated by 13.6% year-to-date, while the MSCI World Index had declined by 6.8% (both in sterling terms). There is potential for this outperformance to continue, particularly in a rising interest rate environment, which traditionally favours value rather than growth stocks. The MSCI Emerging Markets Latin America Index is biased towards value sectors, with materials, financials and energy stocks representing c 60% of the total. BRLA’s managers focus on quality companies and the trust has favourable relative attributes. BRLA is trading on a forward P/E multiple of 14.0x versus 15.5x for the index. The trust’s estimated earnings growth for 2022 is mid-teens compared with a consensus 8% for the Latin American market , while the portfolio’s return on equity of c 16% is meaningfully above the market’s c 11%.
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Discount in narrowing trend since September 2021
BRLA’s discount has narrowed since September 2021, perhaps in anticipation of the proposed tender offer (details on pages five and six). The share price is currently at a 6.7% discount to cum-income net asset value (NAV) versus a discount ranging between 5.0% and 14.4% over the last 12 months. Over the last one, three, five and 10 years the share price discount has ranged between 9.7% and 11.7%. BRLA offers an attractive 5.2% dividend yield, which is based on 1.25% of the trust’s quarterly NAV.
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