BlackRock Latin American Trust: the tide is turning for Brazil

The BlackRock Latin American Trust, largely invested in Brazil, is grabbing the bull by the horns. Investors should, too.

951_MW_P18_Funds

It's time to celebrate Latin America

2019 Getty Images

The BlackRock Latin American Trust is grabbing the bull by the horns. Investors should, too.

"Brazil is the country of tomorrow and always will be," said Charles de Gaulle. Investors appear to agree with him, focusing their emerging markets (EM) exposure on Asia. In the 1990s, there were half a dozen investment trusts specialising in Latin America. Now there is only the £200m BlackRock Latin American Investment Trust (LSE: BRLA) and two tiddlers.

Sam Vecht, who, with Ed Kuczma, took over the management of BRLA last December, thinks the tide is about to turn. "For the first time in a long time, Latin America looks very attractive relative to other EMs," he says. Latin Americans, he believes, have learned some hard lessons from a succession of disastrous populist governments.

The economic failure of such governments in Venezuela, Argentina, Brazil and elsewhere has ended with them stealing money, killing people, or both. Vecht is confident that the election of Andrs Manuel Lpez Obrador as president of Mexico late last year will have different results; "a lot of the concerns are overdone", he says. If he is wrong and Obrador conforms to the usual pattern, the US may need Trump's wall. Meanwhile, there is a risk that Cristina Fernndez de Kirchner, who destroyed Argentina's economy in her eight years as president, will be returned to power later this year as her successor, Mauricio Macri, struggles to pull Argentina out of its nosedive.

The Argentines, however, have always believed that the world, and especially the banks, owe them a living. As the Mexicans say, "if you could buy an Argentine for what he is worth and sell him for what he thinks he is worth, you would make a large profit". Elsewhere, people expect less from their politicians. In Brazil, new president Jair Bolsonaro has promised reforms, but Vecht's expectations are low. "Real reform in any EM is very difficult," he says, "and politicians have a habit of promising reform and then not delivering. But some progress is likely." With Brazil at 109 in the World Bank's "ease of doing business" ranking, it could hardly get worse.

The case for buying now

Vecht has concentrated the portfolio, with the top ten holdings accounting for 58% of the total. The focus is on large caps, though Vecht expects to diversify into mid and small caps over time. This would not necessarily be higher risk: he inherited a large holding, still 6.7% of the total, in miner Vale, whose share price fell sharply following two dam bursts at its iron-ore mines in less than four years. The largest holding at 11.3% is Petrobras, the scandal-hit Brazilian oil major. Vecht believes that the sale of non-core assets to focus on exploration and production will be good for the share price.

Vecht's positive call on Latin America seems premature, but he is a manager who is always worth following and his claim that a lot of bad news is discounted in share prices is unarguable. The 14.1% discount to net asset value (NAV) at which the shares trade and a yield, partly paid out of capital, of 5% of NAV, support the case for buying now.

Recommended

Russia and Ukraine: what does Putin want?
Global Economy

Russia and Ukraine: what does Putin want?

Russia's president Vladimir Putin has many reasons for his military build-up on the border with Ukraine, but the costs of an invasion would be extreme…
29 Jan 2022
Scottish Mortgage Investment Trust update: share price down as tech stocks crash
Investment trusts

Scottish Mortgage Investment Trust update: share price down as tech stocks crash

Scottish Mortgage Investment Trust has been remarkably successful over the years but is now trading at a discount to its NAV due to falling tech stock…
28 Jan 2022
Asian economies must adjust to Covid-19
Emerging markets

Asian economies must adjust to Covid-19

Asian countries have kept tight restrictions, and are only slowly rolling out vaccines. Markets are subdued, but better times may be coming.
28 Jan 2022
How to invest in blockchain without buying cryptocurrencies
Bitcoin & crypto

How to invest in blockchain without buying cryptocurrencies

Many investors have been searching for a way to invest in bitcoin in their Sipp or Isa via a regular broker account. This fund fits the bill nicely, s…
27 Jan 2022

Most Popular

Shareholder capitalism: why we must return power to listed companies’ ultimate owners
Investment strategy

Shareholder capitalism: why we must return power to listed companies’ ultimate owners

Under our system of shareholder capitalism it's not fund managers, it‘s the individual investors – the company's ultimate owners – who should be telli…
24 Jan 2022
Amazon halts plans to ban UK Visa credit card payments
Personal finance

Amazon halts plans to ban UK Visa credit card payments

Amazon has said that it is to shelve its proposed ban on UK customers making payments with Visa credit cards.
17 Jan 2022
Temple Bar’s Ian Lance and Nick Purves: the essence of value investing
Investment strategy

Temple Bar’s Ian Lance and Nick Purves: the essence of value investing

Ian Lance and Nick Purves of the Temple Bar investment trust explain the essence of “value investing” – buying something for less than its intrinsic v…
14 Jan 2022