BlackRock Latin American Investment Trust plc

About this investment trust

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

The Company aims to secure long-term capital growth and an attractive total return primarily through investing in quoted securities in Latin America.

Why choose it?

Latin American countries hold a wealth of opportunities for long-term investors keen to participate in the region's growth and diversity. Our experienced team draws on its extensive network in the region to uncover the most compelling opportunities across a variety of countries and sectors.

Diversification and asset allocation may not fully protect you from market risk.

Suited to…

Investors with a long-term horizon who want to include Latin American shares in their portfolio and are able to tolerate periods of market volatility in pursuit of capital growth. This means shares prices may rise and fall more frequently.

What are the risks?

• Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
• Overseas investment will be affected by movements in currency exchange rates.
• Emerging market investments are usually associated with higher investment risk than developed market investments. Therefore the value of these investments may be unpredictable and subject to greater variation.
• Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.

Useful information

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Fees & Charges

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ESG Integration

Environmental, Social and Governance (ESG) investing is often conflated or used interchangeably with the term “sustainable investing”. BlackRock has identified sustainable investing as being the overall framework and ESG as a data toolkit for identifying and informing our solutions. BlackRock has defined ESG Integration as the practice of incorporating material ESG information and consideration of sustainability risks into investment decisions in order to enhance risk-adjusted returns. BlackRock recognises the relevance of material ESG information across all asset classes and styles of portfolio management. The Investment Manager may incorporate sustainability considerations in its investment processes across all investment platforms. ESG information and sustainability risks are included as a consideration in investment research, portfolio construction, portfolio review, and investment stewardship processes.

The Investment Manager considers ESG insights and data, including sustainability risks, within the total set of information in its research process and makes a determination as to the materiality of such information in its investment process. ESG insights are not the sole consideration when making investment decisions and the extent to which ESG insights are considered during investment decision making will also be determined by the ESG characteristics or objectives of the Company. The Investment Manager’s evaluation of ESG data may be subjective and could change over time in light of emerging sustainability risks or changing market conditions. This approach is consistent with the Investment Manager’s regulatory duty to manage the Company in accordance with their investment objectives and policies and in the best interests of the Company’s investors. The Investment Manager’s Risk and Quantitative Analysis group will review portfolios to ensure that sustainability risks are considered regularly alongside traditional financial risks, that investment decisions are taken in light of relevant sustainability risks and that decisions exposing portfolios to sustainability risks are deliberate, and the risks diversified and scaled according to the investment objectives of the Company.

BlackRock’s approach to ESG integration is to broaden the total amount of information the Investment Manager considers with the aim of improving investment analysis and understanding the likely impact of sustainability risks on the Company’s investments. The Investment Manager assesses a variety of economic and financial indicators, which may include ESG data and insights, to make investment decisions appropriate for the Company objectives. This can include relevant third-party insights or data, internal research or engagement commentary and input from BlackRock Investment Stewardship.

Sustainability risks are identified at various steps of the investment process, where relevant, from research, allocation, selection, portfolio construction decisions, or management engagement, and are considered relative to the Company’s risk and return objectives. Assessment of these risks is done relative to their materiality (i.e. likeliness of impacting returns of the investment) and in tandem with other risk assessments (e.g. liquidity, valuation, etc.).

ESG integration does not change the Company’s investment objective or constrain the Investment Manager’s investable universe, and does not mean that an ESG or impact focused investment strategy or exclusionary screens have been or will be adopted by the Company. Similarly, ESG integration does not determine the extent to which the Company may be impacted by sustainability risks.

Fund manager commentary

30 June 2024

Comments from the Portfolio Managers

Please note that the commentary below includes historic information in respect of the performance of portfolio investments, index performance data and the Company’s NAV and share performance.

The figures shown relate to past performance. Past Performance is not a reliable indicator of current or future results.

The Company’s NAV returned -8.2% in June, underperforming the benchmark, MSCI Emerging Markets Latin America Index, which returned -5.4% on a net basis over the same period. All performance figures are in sterling terms with dividends reinvested.¹

Emerging Markets (+3.9%) outperformed Developed Markets (+2.0%) in June. Latin America (-6.1%) lagged the rest of Emerging Markets, and was the only region to post negative returns with all markets in the red. Argentina (-10.7%) and Mexico (-10.6) were the main drivers of this decline, where the underperformance of the latter was driven by political concerns post-election. Brazil was the best performer with a -3.7% month on month return.

At the portfolio level, our exposure to a non-domestic IT services company in Argentina and a precious metals exposure in Ecuador were the key positive contributors to performance. On the other hand, stock picking in Brazil and Mexico impacted performance during the month. In addition, it is worth highlighting that the index performance has been quite weak during the month of June. Since the Company usually employs gearing, one should expect the portfolio to underperform during index downturns (and outperform during upturns).

From a security lens, an off-benchmark holding in IT services company, Globant was the largest contributor to returns. While the company is domiciled in Argentina, it largely generates revenues from US tech spending and results from peers suggest that said spending is holding up well. Not owning Mexican cement producer Cemex and our underweight position to Mexican mining company, Grupo Mexico also contributed to performance. The Mexican market declined more broadly on concerns around less checks and balances following Sheinbaum's landslide win in the elections in early June. Another contributor over the period was our overweight position in Brazilian logistics company Rumo. The company's May 2024 volumes surprised to the upside which was a positive for the stock.

On the flipside, an overweight position in Mexican airport operator, Grupo Aeroportuario del Pacífico (GAPB) was the biggest detractor in June on the back of Sheinbaum's land slide win and market concerns around the resulting strong majority. Another detractor during the month was our overweight position in Brazilian supermarket chain, Assai. This is a highly levered company whose performance has been impacted by the delay in the rate cutting cycle from the Brazilian Central Bank. A lack of exposure to Brazilian electric equipment firm, WEG also hurt returns. WEG’s share price rose on the back of news of Robert Bosch's takeover of Whirlpool, for which WEG is a key supplier. As an exporter, the depreciation of the Brazilian Real likely also helped the share price.

We made few changes to the portfolio in June. We exited our position in Lundin Gold as the investment thesis had largely played out. This stock has been among the top contributors in the portfolio year-to-date. We rotated capital within Brazil, from beverage company Ambev to CCR, a road and transport infrastructure operator in Brazil, to reflect analyst conviction. In Mexico, we took advantage of the significant sell-off following the election and topped up our holding in Banorte. We do not believe that the election outcome will have a meaningful impact on the earnings of Banorte.

Brazil is the largest portfolio overweight as of the end of June. Mexico is our second largest overweight. On the other hand, we remain underweight in 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.

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 Andrés Manuel López Obrador’s presidency. 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. 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. 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 the official exchange rate might be overvalued. Therefore, we see the risk of another exchange rate devaluation, which could reignite inflationary pressures.

We acknowledge the strengths of the data in the United States at the beginning of the year, but we believe that, ultimately, the domestic economic outlook in the Latin American countries will be the key driver of local interest rates. We therefore maintain conviction in the portfolio’s positioning in rate-sensitive domestic stocks. In addition, our view of a softer US labour market and further disinflation seems to be playing out, as evidenced by the recent rise in jobless claims and the relatively benign inflation data in May and June. As a result, the pressure from higher rates in the US is easing.

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. During the month of June, 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.

Source: Unless otherwise stated all data is sourced from BlackRock as at 30 June 2024.

¹Source: BlackRock as at 30 June 2024

Any opinions or forecasts represent an assessment of the market environment at a specific time and are not intended to be a forecast of future events or a guarantee of future results.

This information should not be relied upon by the reader as research, investment advice or a recommendation.

Risk: Reference to the names of each company mentioned in this communication is merely for explaining the investment strategy, and should not be construed as investment advice or investment recommendation of those companies

Portfolio manager biographies

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Sam Vecht is lead manager of the BlackRock Latin American Investment Trust plc. He is Head of the Emerging Europe, Frontiers and LatAm team within the Fundamental Active Equity division of BlackRock's Active Equities Group and is responsible for managing long-only and long/short portfolios in both Emerging and Frontier markets. He is also co-manager of the BlackRock Frontiers Investment Trust plc. Sam joined BlackRock in 2000 in the Global Emerging Markets Team. He has a degree in International Relations and History.

Christoph Brinkmann is deputy manager of the BlackRock Latin American Investment Trust plc. He is Vice President in the Global Emerging Markets Equities Team who has covered multiple sectors and countries across the Latin American region. He joined BlackRock in 2015 after graduating from the University of Cologne with a Masters in Finance and a CEMS Masters in International Management.

Board of directors

Carolan Dobson (Chairman) was appointed as a Director on 1 January 2016 and as Chairman on 2 March 2017. She is the former Head of UK Equities at Abbey Asset Managers and former Head of Investment Trusts at Murray Johnstone and therefore brings a wealth of industry experience to the Board. She is currently Non-Executive Chairman of Brunner Investment Trust plc and Baillie Gifford UK Growth Fund plc.

Craig Cleland was appointed as a Director on 1 January 2019 and Chairman of the Audit Committee from 31 March 2019. He is Head of Corporate Development/Investment Trusts at CQS (UK) LLP, a multi-asset asset management firm in London with a focus on credit markets, where his responsibilities include advising and developing the closed-end fund business. He is also a Director of Invesco Perpetual Select Trust plc and the CC Japan Income & Growth Trust plc and was formerly a Director of Martin Currie Asia Unconstrained Trust plc. He was previously at JPMorgan Asset Management (UK) Limited, latterly as Managing Director, and led their technical groups in the investment trust business. Prior to that, he was a Director and Senior Company Secretary at Fleming Investment Trust Management, transferring to JPMorgan Asset Management after Chase Manhattan Bank acquired Robert Fleming Holdings Limited.

Laurie Meister was appointed as a Director on 1 February 2020. Ms Meister has 32 years of financial markets experience, both in New York and in London, with 28 years dedicated to having led and developed Latin American equity and capital markets businesses and other emerging markets. Her most recent position was as the Director of Latin American equity sales for European institutional clients for Deutsche Bank from 2008 to 2018. Prior to this she worked for J.P. Morgan Chase as a Director with responsibility for rebuilding the Cemea (Central and Eastern Europe, Middle East and Africa) equity business and then became the Senior European Equity Director for their Latin American equity business. Her initial experiences in the Latin American equity arena included the European start up in the early 1990s of the Merrill Lynch Latin American research sales operation. She then moved as a Managing Director to Robert Flemings in 1995 where she co-led the start-up of their Latin American trading sales and research operations across the region. Ms Meister has a B.A. from the University of Pennsylvania and an M.B.A. in Finance from the New York University Stern School.

Nigel Webber was appointed as a Director on 1 April 2017. Mr Webber’s broad investment experience has seen him lead the design of investment solutions for affluent and high-net-worth individuals across global markets and multiple asset classes. Most recently, he was Global Chief Investment Officer for HSBC Private Banking where he held global responsibility for all investment activity for Group Private Banking. During his time at HSBC, Mr Webber was also Chairman of the Global Investment Committee for Group Private Bank and Chairman for HSBC Alternative Investments Limited. Prior to this, he held a number of blue-chip executive positions around the world for investment and asset management businesses. He is also a qualified accountant.