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.
While volatility can be a feature of the Latin American market, there are reasons for optimism. Brazilian economic growth is expected to increase from subdued levels in 2019, supported by low interest rates, benign inflation and a major programme of government reforms. In addition, valuations in the region remain relatively attractive compared with the world market.
◼ More concentrated fund based on the managers’ highest-conviction ideas.
◼ More tactical use of gearing.
◼ Higher dividend payments, based on 1.25% of quarter-end $ NAV; the trust currently offers a 6.0% dividend yield.
◼ Medium- and long-term outperformance versus the benchmark.
BRLA’s valuation has improved in recent months, and the current 8.8% share price discount to cum-income NAV compares with the 11.6%, 13.1% and 12.9% average discounts over the last one, three and five years respectively. There is scope for the valuation to continue to improve given the change in the trust’s managers and the move to a higher distribution policy.