Investments  

BlackRock Latin American trust prefers Mexico to Brazil

BlackRock Latin American trust prefers Mexico to Brazil

The BlackRock Latin American Investment Trust saw its share price increase by 9.5 per cent last month, with the portfolio benefitting from a stronger currency in Mexico.

In a trading update published today (22 March), the trust saw its net asset value increase by 4.8 per cent in February, after seeing a 42.8 per cent fall in its NAV over the past three years.

The trust has been fairly well aligned to the MSCI EM Latin America benchmark over three years, falling 43.5 per cent since 2013, and increasing 5.6 per cent in February.

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Will Landers, BlackRock investment manager, said a lack of exposure to Latin American iron ore and nickel producer Vale has weighed down on returns, and suggested the materials sector was one of the strongest performing sectors during the month with iron ore increasing by 14 per cent

However, Mr Landers said the portfolio’s holdings in Mexico have offset this.

“The largest contributor to performance was Mexican cement stock Cemex, which benefited from strength in the Mexican peso as well as the strong move in materials during the month,” he said.

“Our exposure to Peru also contributed positively for the month as that market benefited from the move in commodities.”

According to the latest data available, in February the trust management team moved its copper exposure from Southern Copper to Grupo Mexico, as it expected the latter to benefit from a stronger currency in Mexico.

The team also rotated some financial exposure in Mexico from Gentera to Grupo Financiero Banorte following the surprise rate hike in Mexico.

 

Mr Landers said the team entered March continuing to prefer Mexico over Brazil, pointing to the gradual recovery of Mexico’s domestic economy and the moves by Banco de Mexico to increase rates.

“Brazil, on the other hand, continued to disappoint on the political, fiscal and monetary fronts – with the caveat being that the latest developments in the Petrobras investigation once again increased the odds of political change in Brazil,” he said.

“Peru is poised to enjoy an improvement in investment and business sentiment with the upcoming presidential election in the second quarter.”

The portfolio has a 42.6 per cent exposure to Mexico and a 48.1 per cent exposure to Brazil.

Net cash was about 3.5 per cent at the end of February.

Adviser View

Ben Willis, head of research at Whitechurch Financial Consultants, said: “Many of the emerging markets have produced strong returns year-to-date, in contrast to a particularly tricky 2015.”

He said Latin America - led by Brazil - has been “severely hampered” by capital outflows during periods of risk aversion, and by the falls in commodity and energy prices.

“Even though the trust itself is sector diversified, the fortunes of many Latin American countries is dependent on US policy and the dollar, the Chinese economy and commodity and energy prices.”