BlackRock Latin American (BRLA) invests in Latin America for capital growth, using the full extent of BlackRock’s resources as the world’s largest money manager to generate alpha from stock selection and proprietary macroeconomic analysis. Since 2018, BRLA has also paid a quarterly dividend set at 1.25% of NAV, equivalent to 5% at a constant NAV. The board can pay this out of capital where necessary, which means the managers can continue to focus on the best growth prospects without having to sacrifice growth for yield. Managers Ed Kuczma and Sam Vecht took over in January 2019. Their aim has been to make the portfolio more active, with individual stock picks more important to performance. As we discuss in the Performance section, this has generally been successful, although the region has been rocked by two major crises during the managers’ tenure. The MSCI EM Latin America benchmark is dominated by Brazil (c. 61%) and Mexico (c. 24%), and BRLA’s portfolio is similarly weighted. The region’s markets were among the worst hit by the coronavirus pandemic with a c. 45% peak-to-trough fall. The index is now trading on extremely low P/E levels and BRLA is on a 10.3% discount (see the Discount section). The only two other closed-ended funds investing in Latin America are very small (with net assets well below £50m). As a result, their charges are double BRLA’s. With open-ended funds also rare, BRLA is one of the few options for exposure to the region, and benefits from the advantages of closed-ended funds such as the ability to gear and not having to sell into falling markets.
Companies: Blackrock Latin American Inv Tst
We have knitted together the impact on the investment companies from what is now widely considered to be the most severe pandemic in a century. The collapse in asset prices over the latter part of March, brought the curtain down on an up-market that lasted more than ten years. In amongst this, there were pockets, such as the technology sector, that held up well. For many industries, the worst is still to come, as we brace ourselves for the sharpest contraction to global growth since the US great depression.
Companies: ASL SDV ASIT BGEU BRLA CCPE DPA IEM JMF JZCP JUKG EPIC PSHD CSH RIII CCPG BLP TMPL BPCR SEQI AIF SMT CIFU SQNX FAIR ICON RSE CRS GWI USF DIGS
BlackRock Latin American Investment Trust (BRLA) has been managed by Sam Vecht and Ed Kuczma since late December 2018. They have created a more concentrated portfolio comprising their highest-conviction ideas in the region. The managers are employing gearing in a more tactical way, which they report has proved successful in both up and down markets, and they have been more active in adding to and trimming positions when deemed appropriate. As a result of the changes made, BRLA now has higher stock-specific risk, but lower country and sector risk. The managers say the success of the strategy was evidenced in the trust’s strong relative performance in Q419. They are constructive on the prospects for Latin America in 2020 based on an expectation of higher economic growth, low interest rates and the potential for a weaker US dollar.
It is something of a truism to say that emerging markets are not a homogenous blob, but a range of highly differentiated economies and stock markets. Yet as investors, we often categorise them as one and the same, especially from an asset allocation and risk management perspective.
Companies: FCSS BRFI ANII BEE BRLA
BlackRock Latin America (BRLA) aims to profit from the growth potential in Latin American equities, chiefly those of Brazil and Mexico. The trust is managed by Ed Kuczma and Sam Vecht, who lean on the deep resources of the broader BlackRock emerging markets team. Currently BRLA is heavily weighted towards Brazil. The managers are highly bullish on the country thanks to its favourable political scene, the potential for further interest rate cuts and booming personal consumption. Although Ed and Sam aim to maximise capital growth, the trust pays out 1.25% of NAV each quarter as a dividend, which would be 5% on a constant NAV basis. The dividend is paid from capital if income is not sufficient. The trust’s process has been revamped under the new managers, who took over in January 2019. While the key elements of the strategy remain the same, there has been greater integration with the wider emerging markets team, aided by Sam’s presence. Sam heads the EMEA, Frontiers and Latin America desk and runs portfolios with a broader focus, while Ed is a Latin America specialist. The managers report that they have integrated macroeconomic and political analysis deeper into the portfolio construction process, while they have also made the portfolio more concentrated and more active, or more different from its benchmark, increasing its potential for outperformance. BRLA is overweight Brazil and Mexico, and gearing is also high relative to its possible range, indicating the managers’ optimism for their markets and expectations of good returns to come. Their more active stance has not yet been rewarded with returns, however, as we discuss in the performance section. BRLA currently trades on a 12.7% discount at the current share price, close to its five-year average of 13%. The discount narrowed in the first half of the year, following the announcement that Ed and Sam were taking over as managers, but has widened back out to near where it started 2019.
There was palpable shift in sentiment over the third quarter with the cautionary undertone perhaps best reflected by gold’s resurgence. Ongoing trade jockeying between the US and China did not help the mood and neither did the Argentine debt default in August. At the real economy level, manufacturing output has been trending lower across some of the major global economies.
Companies: AEMC BIOG SIGT IBT JEFI MHN MERI MTE PSHD RSE SIR FJV LTI MVI SEQI SONG SLI EGL SUPP VNH CSH VSL BRLA UTL ADAM SOHO GPM TPOU LEAF JRS JLEN SEC IGC MPO LIV INTU THRL
BlackRock Latin American Investment Trust (BRLA) is managed by Ed Kuczma and Sam Vecht. The managers are constructive on the outlook for Latin American equities, believing the favourable interest rate environment is supportive for consumption growth. They seek high-quality businesses that are able to grow earnings and cash flows over the economic cycle. The managers have reduced the trust’s cyclical exposure, focusing more on companies with internal growth drivers and attractive dividend yields. Following the adoption of a new, higher dividend policy in FY18, BRLA currently offers a c 6% dividend yield.
BlackRock Latin America (BRLA) invests in the stock markets of the developing countries that make up the Latin America region, aiming to generate high long-term total returns through a mixture of economic analysis and stock-picking. The board have been highly active over the past year in an attempt to revivify the trust and create a more attractive product. Last year it committed to paying out 1.25% of NAV each quarter as a dividend, which would amount to a yield of 5% at a constant NAV, and 5.5% on the current share price. The dividend will be paid out of capital if necessary, so the managers will not have to change their total return focus. So far only three dividends have been paid under the new policy, which is the reason data providers currently show a current yield of 5.2%. Following the resignation of the previous manager Will Landers, Ed Kuczma and Sam Vecht took responsibility for the trust on 24 December 2018. They have used a rally in the region to take profits in some positions and recycle into more attractively valued stocks. Ed and Sam plan “evolution, not revolution”, with the same house style of using macro-economic analysis to focus their attention on those countries whose economic fundamentals are improving but a renewed emphasis on stock-picking, with individual stocks expected to be more important to returns. In the managers’ view, the region is looking extremely attractive as a long-term play, with currencies and valuations both depressed, yet economic fundamentals improving. The pro-market government of Brazil’s Jair Bolsanaro also gives reason for optimism about the course of markets. Since the change of management, the discount has come in from above 17% to closer to 9%. This may be due to both the good performance in the region and the reputation of the new managers. Sam has been involved the success of BlackRock Frontiers over the past decade, and the trust has frequently traded on a premium. The downside to the discount is limited by a tender offer due to be implemented in 2021 should the trust not outperform the index or if the discount remains wider than 12% on average.
BlackRock Latin American Investment Trust (BRLA) has two experienced new co-managers, Ed Kuczma and Sam Vecht, who are part of BlackRock’s well-resourced global emerging markets equities team and were appointed to manage BRLA in December 2018, following the resignation of former lead manager Will Landers. Kuczma had worked closely with Landers for a number of years and says the transition should be smooth. The managers are constructive on the outlook for Latin American equities in 2019, following a series of headwinds in 2018, citing improving economies, attractive valuations and a more benign political environment. BRLA’s board adopted a new, higher dividend policy in FY18. The trust yields 4.0% based on three interim payments during the last financial year; the total distribution should rise in FY19 based on four quarterly dividend payments.
BlackRock Latin American Investment Trust (BRLA) is managed by Will Landers, who says that investor attitudes towards Latin American equities have changed. 2017 was a period of confidence in the region’s prospects, but now there is more scepticism about the growth outlook. However, the manager remains optimistic about potential returns from Latin American equities. In the key Brazilian economy, he cites higher domestic demand and a favourable interest rate environment, with the benchmark interest rate having more than halved to a record low level. BRLA has recently announced new dividend and discount management policies, which may lead to a narrowing in its discount over time. Dividends will now be paid four times a year, equivalent to 1.25% of the dollar-based, quarter-end NAV. As a result, the trust now offers an attractive prospective yield.
After a difficult time in 2015, emerging markets have enjoyed some welcome respite over the past few years. Throughout 2016, the MSCI Emerging Markets Index delivered NAV returns of 32.6%, and 2017 saw similarly strong returns of 25.4%. Many of the factors that originally attracted investors to emerging markets seem to be coming back into play, including improving earnings growth, higher economic growth and robust consumer trends. As an additional tailwind, the weak dollar has helped the commodity exporting countries like Russia, Brazil and Chile continue to grow while at the same time encouraging investors to chase higher yielding EM countries.
Companies: Templeton Emerging Markets Inv Trust Blackrock Latin American Inv Tst
BlackRock Latin American Investment Trust (BRLA) is managed by Will Landers, who has 26 years of experience at BlackRock. He is optimistic on the outlook for Latin American equities in 2018, due to relatively attractive company valuations and improving economies in the region, especially in Brazil, where he describes the recovery as “slow and sure”. He says that in 2017, emerging market equity performance was led by Asian companies and there is potential for Latin American companies to catch up if investors have confidence in the improving economic outlook. After a recent improvement in investment performance, BRLA’s NAV total return is now outperforming the benchmark over one, three and five years.
BlackRock Latin American Investment Trust (BRLA) is a well-established fund offering exposure to Latin America via a diversified equity portfolio. Manager William Landers aims to generate an attractive total return from a portfolio of 50-75 holdings invested across the capitalisation spectrum. He notes that despite negative political headlines in Brazil (the largest economy in the region), there is economic progress helped by falling interest rates and an inflation rate that is lower than the Central Bank of Brazil’s target. Landers is positive on Brazil’s political agenda and believes that the recent passing of the labour reform bill suggests that there is a broad appetite for reform, less conditional on President Temer than may have been thought. The manager is positive on the outlook for Latin American equities, while acknowledging that there will be “bumps along the way”. BRLA’s current dividend yield is 2.7%.
BlackRock Latin American Investment Trust (BRLA) is a long-established fund investing in Latin American equities. Manager Will Landers runs a 50-75 stock portfolio with daily input from a dedicated Latin America team. BRLA aims to generate an attractive total return, superior to that of its benchmark, the MSCI Emerging Markets Latin America Index. The fund is overweight Brazil, which surged when impeachment proceedings were brought against former president Dilma Rousseff, and underweight Mexico, where sentiment soured following the surprise Trump victory.
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Ramsdens has reported a strong set of trading results in the last twelve months to March 2020. COVID lockdown has led to store closures, which will lead to weaker trading over the following months. However, Ramsdens has a very solid balance sheet, is diversified and is well positioned to re-open stores and continue its growth. We use an 8x multiple on last 12 months to March 2020 earnings as a reflection of a normalised earnings base which reduces our target price to 162p from 180p. At this target price Ramsdens would trade on a CY20 P/B of 1.5x. This target price offers 15% upside and we re-iterate BUY.
ULR’s finals were in line with on EPRA NAV and earnings a little better than expected. Valuations remain stable and full rent collection has been achieved for the current quarter. We see fundamental quality and resilience in the (now expanded) portfolio – ULR has already invested nearly £100m in the first two months of the new year following the £136m equity raise. We make no material changes to forecasts. Current valuation points to an 7%+ annualised return, with upside remaining from deployment of funding headroom, active management and potential for valuations to improve.
Companies: Urban Logistics REIT
A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
Companies: AGR CSH ESP DIGS IHR LXI PHP RESI SIR SUPR THRL SOHO BBOX SHED WHR
Aside from its FY 19 earnings presentation, British Land has adopted a more cautious anticipation about Offices in the City of London. We share this pessimism and have been surprised by the recent share’s bump. The latter is the opportunity to turn negative, again, and update our divestment case.
Companies: British Land Company
The Merchants Trust (MRCH) is managed by Simon Gergel at Allianz Global Investors (AllianzGI). Aiming to continue to provide a high and growing level of income, he is adjusting the trust's portfolio in the wake of dividend cuts sparked by the negative economic effects of COVID-19. If there is an income shortfall in this financial year, MRCH is well positioned to maintain its dividend, with revenue reserves of more than 1x the last annual payment. It has not been an easy period for value managers over the last decade as growth stocks have led the charge; however, Gergel has outperformed the UK market over this period in both NAV and share price terms. The board reduced MRCH's gearing in late January 2020, which was opportune timing ahead of the recent significant stock market weakness.
Companies: Merchants Trust
The covid-19 pandemic has had a devastating effect on the share price of property companies, with 31% wiped off the value of their total market capitalisation during the first quarter of 2020.
Companies: AEWU CREI CSH BOOT INL HLCL THRL SUPR RESI RGL DIGS GR1T SOHO PHP BOXE ASLI UTG AGR UAI BLND UANC CAL SHED CWD WHR EPIC WKP GRI YEW HMSO PCA INTU NRR
In the past month the group has made significant progress in pivoting its business away from its traditional face-to-face model. Although lending levels remain appropriately subdued, it has achieved an impressive collections performance, with its largest business running at about 90% of pre-lockdown levels. This, combined with the group’s high risk-adjusted margins has enabled it to generate £3m of FCF in the first three weeks of April, taking its net cash position to £38.7m as of 21 April. This strong financial position, combined with the group’s innovative approach to product development puts it in an extremely strong position to serve its clients and win share when the current government restrictions are eventually lifted. Reflecting this positive outlook we reiterate our BUY rating.
Companies: Non-Standard Finance
In this note, we analyze the indebtedness of 35 international E&Ps publicly listed in the UK, Canada, Norway, Sweden and the USA. For each company, we look at (1) cash position, (2) level and nature of debt (including covenants), (3) debt service and principal repayment framework and (4) Brent price required from April to YE20 to meet all the obligations and keep cash positions intact. We also estimate YE20 cash if Brent were to average US$20/bbl from April to YE20. While the oil demand and oil price collapse are of unprecedented historical proportions and the opportunities to cut costs much more limited than in 2014, most companies (with a few exceptions) entered the crisis in much better position than six years ago, with stronger balance sheets and often already extended debt maturities. In addition, this time around, many E&Ps have already been deleveraging for 1-2 years and are not caught in the middle of large developments that cannot be halted. The previous crisis also showed that debt providers could relax debt covenants for a certain period as long as interest and principal repayment obligations were met. This implies that as long as operations are not interrupted and counterparties keep paying their bills (Kurdistan), the storm can be weathered by most for a few quarters.
With (1) Brent price of about US$50/bbl in 1Q20, (2) reduced capex programmes, (3) material hedging programmes covering a large proportion of FY20 production at higher prices and (4) limited principal repayments in 2020, we find that most companies can meet all their costs and obligations in 2020 at Brent prices below US$40/bbl and often below US$35/bbl) from April until YE20 and keep their cash intact, allowing them to remain solvent at much lower prices for some time. In particular, Maha Energy and SDX Energy are cash neutral at about US$20/bbl. When factoring the divestment of Uganda, Tullow needs only US$9/bbl to maintain its YE20 cash equal to YE19. Canacol Energy, Diversified Gas and Oil, Independent Oil & Gas, Orca Exploration, Serica Energy and Wentworth Resources are gas stories not really exposed to oil prices and Africa Oil has hedged 95% of its FY20 production at over US$65/bbl.
Companies: AKERBP AOI CNE CNE DGOC EGY ENOG ENQ GENL GKP GPRK GTE HUR IOG JSE KOS LUPE MAHAA OKEA ORC.B PEN PHAR PMO PTAL PXT RRE SDX SEPL TETY TGL TLW TXP WRL
The positive market movements (£19.5bn) offset the net outflows of £1.3bn. The adjusted operating profit before tax reached £1,149m, down 21.9% yoy. The insurer benefited less from longevity assumption changes (£126m vs. £441m in 2018) in the Heritage business and the lower Asset Management fees margin (38bp vs. 40 bp in 2018) in the Savings and Asset Management one. The current context has led to a decrease in the Solvency II ratio by 10%, but the capital position remains resilient at 166%.
Today's news & views, plus announcements from VOD, POLY, SMDS, BLND, BYG, WEIR, DC, SNR, SHI, INTU, IHR, CNC, ARE, INCE
Companies: INTU SHI INCE
U+I’s post-close trading update confirms c. £16m of development and trading gains for FY20, which includes Harwell. This is broadly in line with our revised expectations. Proactive steps are being taken to preserve liquidity in the short-term, including suspending the final dividend and stopping all non-essential spend. Positively, benefits of the cost saving programme will now be realised 12 months early. The balance sheet is strong, with ample liquidity; covenant levels are a long way off. Management’s time is being spent repositioning teams to be ready when restrictions are lifted, when there will be a renewed focus on the short-to-medium term value gain opportunities, of which there are plenty. The shares currently trade at 59% spot discount to our updated NAV forecasts, vs the UK sector at a 9% discount. We leave our recently lowered 180p target price unchanged and continue to see upside from here.
Companies: U&I Group
Regional REIT’s (RGL) results for the year to 31 December 2019 (FY19) confirmed its strategic and operational progress, with the financial results in line with expectations and the Q419 DPS paid as planned. Positive momentum in regional office and light industrial markets continued into FY20, but was punctuated by COVID-19. However, the portfolio is highly diversified and Q2 rent collection experience is encouraging, supported by an integrated asset management platform. The management team is experienced, borrowings are secure, and liquidity strong.
Companies: Regional Reit
Recent news: On 21 April CLIG’s 3Q trading update to 31 March 2020, revealed:
27% fall in Funds Under Management (“FUM”) from US$6.0bn to US$4.4bn
- with weaker Sterling, FUM in £ fell 20% from £4.5bn to £3.6bn.
In 3Q, while Diversification CEF strategies (Opportunistic Value and Developed funds) had net inflows of US$25m, the Group’s Emerging Market Funds had net outflows US$68m
The Group has an active pipeline across all its major CEF offerings with increased interest in the Diversification CEF strategies
Post COVID-19, income to FuM remains unchanged at c. 75 bps of FuM
Companies: City Of London Investment Group
The COVID-19-related crisis further increases the top-line pressure. However, the quarter showed ongoing efficiency gains and, above all, management’s cost of risk guidance stood significantly below our stress test based projections.
Companies: Lloyds Banking Group
Smaller companies are usually a problematic area to invest in during significant downturns or recessions; and the sharp fall in 2020 hasn’t been an exception. In this article we assess the performance of smaller companies trusts throughout the pandemic, while identifying the factors that have differentiated the winners from the losers. This includes the impact that cash, market cap exposure, sector allocation, revenue exposure and growth or value biases have had, with some surprising results. We also ask whether now is an attractive time to invest in smaller companies, highlighting the trusts which stand out to us…
Companies: THRG GHE MINI RMMC ASIT ASL MTE TRG BRSC DSM