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15. Uncovering Trusts – BlackRock Latin American Investment Trust (BRLA)
44 Plays2 months ago
In this episode, our director of content, investment trusts Milosz Papst discusses BlackRock Latin American Investment Trust, the only available closed-end Latin American fund in the UK. He talks about the Latin American investment backdrop, including the relatively favourable growth and valuation attributes in the region. He also comments on BRLA’s stock selection process and portfolio structure, including some of its largest positions. He also explains BRLA’s dividend policy and conditional tender offer.
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About ‘Uncovering Trusts’
'Uncovering Trusts': is a podcast run by Edison analysts released every two weeks. Subscribe to hear analyst interviews on how investment trusts maximise returns while managing risks for investors.
About Edison:
Edison is a content-led IR business. We believe quality investment content should inform all investors, not just brokers. Our mission: engage and build bigger, better-informed investor audiences for our clients.
Edison covers 50+ investment trusts, read about them here: https://www.edisongroup.com/equities/investment-companies/
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Transcript
Uncovering Trusts Introduction
00:00:05
Speaker
Welcome to Uncovering Trusts, a podcast by The Edison Group, a content-led IR business integrating analyst content, digital targeting and investor engagement. Each episode will uncover the distinct features and latest developments of a selected listed investment company.
00:00:22
Speaker
So tune in to find interesting investment ideas and stay on top of what's happening in the investment company sector.
Guest Introduction: Milos Pabst
00:00:29
Speaker
I'm your host, Will Manuel, and today I'm joined by Milos Pabst, Director of Investment Company Content at the Edison Group.
Focus on BlackRock Latin American Investment Trust
00:00:36
Speaker
And today, Milos will talk about BlackRock Latin American Investment Trust, whose ticker is BRLA. Milos, thanks for joining us today. Thanks for having me. Great. So to start, should we have a high level introduction to the trust, please?
00:00:50
Speaker
Yes, of course. um Importantly, the trust is now the only available closed-end Latin American funds. Having launched in July 1990, it has been managed by BlackRock since March 2006.
Management and Strategy Discussion
00:01:03
Speaker
The trust shares are quoted in sterling on the main market of the London Stock Exchange, while its financial statements are reported in US dollars, and its NAV is quoted in both US s dollars and sterling.
00:01:13
Speaker
The Trust has two managers, Sam Wecht and Christoph Brinkmann. Lead Manager Wecht is a Managing Director and Deputy Manager Brinkmann is a Vice President. They are both members of BlackRock's well-resourced global emerging markets equities team. The Trust's performance is benchmarked against the MSCI Emerging Markets Latin America Index.
Growth and Geopolitical Positioning in Latin America
00:01:32
Speaker
Right, great. So um now maybe it's a good time to discuss the Latin American investment backdrop.
00:01:38
Speaker
Sure. um Latin America has relatively favorable growth and valuation attributes. The economic growth projections of the International Monetary Fund are higher for Latin America and the Caribbean compared with advanced economies in 2024, and the divergence is wider for 2025.
00:01:58
Speaker
Turning to valuations, Latin America appears more attractive than the broader emerging markets, with lower forward earnings and price-to-book multiples and and more than double dividend yield. Compared with the world market, Latin America trades at an around 50% discount on a forward PE and price-to-book multiple basis, while offering a dividend yield that is around three times as large.
00:02:20
Speaker
ah Considering the current global investment backdrop with increasing geopolitical tensions, the world is moving towards three blocks. US-aligned, China-aligned and non-aligned, which includes Latin America. This ensures that Latin America can trade with both aligned and non-aligned blocks. I think it's benefiting from shorter supply chains and incremental spending being directed away from China. As an example, Mexico is benefiting from global manufacturers seeking to set up operations in so-called friendly nations.
00:02:49
Speaker
Another important consideration is that so Latin American countries have employed well sensible monetary policies. Their central banks are used to dealing with inflation, unlike those in developed markets. And as inflation moderates, interest rates are now coming down in most Latin American countries, which should support economic activity and asset prices. ah This in turn could lead to an increase in both foreign direct investments and local investments.
00:03:13
Speaker
Okay, that's really interesting. Thank you. So perhaps if we move our attention back to BRLA, how do the managers actually select stocks for the fund?
Investment Approach: Bottom-up Stock Selection
00:03:22
Speaker
Vecton Bringsman aimed to generate long term capital growth and an attractive total return from a diversified portfolio of Latin American equities.
00:03:30
Speaker
They are supported by BlackRock's global American markets team, which is made up of around 30 investment professionals researching more than 1000 companies across global American markets, including Latin America. The team's analysts look for companies where they have a differentiated view on earnings with a one to two year view.
00:03:47
Speaker
um Stocks are assigned a rating between strong buy, buy, hold, sell and strong sell. The Vecton Bringsman select the trust's investments on a bottom-up basis while taking the macroeconomic environment into account. They seek companies that have positive fundamentals in terms of good long-term earnings growth and cash flow generation, robust balance sheets and well-regarded management teams and which are trading on well reasonable valuations.
Sector Exposure and Top Holdings
00:04:11
Speaker
An assessment of a company's ESG credentials is an important element of every investment decision. The trust resulting portfolio is a high conviction fund of 30 to 50 positions across the market cap spectrum. Right. So now maybe we can spend some time on the structure of the trust portfolio.
00:04:27
Speaker
Sure. While the trust portfolio is actively managed, so it is important to understand well the unique structure of the Latin American market. ah In broad terms, the MSCA Emerging Markets Latin America Index is um dominated by two countries, Brazil, around 60%, and Mexico, around 30%, with the three remaining constituents, Chile, Peru, and Colombia, making up the balance.
00:04:51
Speaker
The trust managers also make modest investments in countries outside of the index, such as Argentina and Panama. The portfolio is broadly diversified by sector with the largest exposure to financial stocks and the top 10 positions make up more than 50% of the fund. The trust managers are positive on the outlook for Latin America and are finding many interesting opportunities in the region at attractive valuations, ah particularly domestic businesses in Brazil. Right, thanks. And can you highlight some of their largest positions?
00:05:18
Speaker
Yes, sure. as as As I've just mentioned, the trust top 10 holdings um well generally make up more than 50% of the portfolio. The managers sometimes seek incremental value by investing in different share types, such as American depository receipts or preferd preference shares.
00:05:35
Speaker
The trust largest positions cover a range of industries, such as a Brazilian integrated oil company Petrobras and Valle, which is a Brazilian producer of iron ore and other metals, including nickel and copper. In Mexico, this country's retailer, Walmart de Mexico, known as Walmart, operates across a range of retail formats, while Grupero Portario del Pacifico operates airports in Mexico and Jamaica.
00:05:59
Speaker
My national stocks make up the largest part of the trust's reference index and the trust long term bank holdings include Banco Bradesco in Brazil and Group of Financio Banorta in Mexico. Right. Okay.
Dividend Strategy and Discount Management
00:06:11
Speaker
um So BNRA has got a total return focus. So can you highlight their dividend policy, please?
00:06:19
Speaker
Since July 2018, quarterly dividends are paid, each of which is equivalent to 1.25% of the trust's calendar, quote, rent, US dollar and AV. This policy aims to help narrow the trust's discount by making it more attractive to income-oriented investors. Distributions can be paid out of income or capital, ensuring the managers are not forced to seek a higher portfolio yield, which may be at the expense of capital growth.
00:06:42
Speaker
ahha Okay, and are there any other features of this trust that are important to highlight? Yeah, so the board employs a discount control mechanism to reduce the trust's discount volatility, favoring a conditional tender offer rather than share repurchases. Subject to the By annual continuation votes in 2024 and 2026 being passed, a 24.99% tender offer will be triggered if the trust outperforms its benchmark by less than 50 basis points per year. The previous hurdle, by the way, was outperform of 100 basis points per year.
00:07:16
Speaker
um over the the four years ending on the 31st December 2025, or if the Trust's average share price discount to come income and AV exceeds 12% over this period. In the 2024 votes, 44.3% of available votes were cast, with 99% in favor of the Trust's continuation.
00:07:35
Speaker
Great. Thank you, Minosh. Really interesting. Thanks for highlighting this unique regional investment trust.
Conclusion and Resources
00:07:41
Speaker
Stay tuned for a special Uncovering Trust episode next week, covering the interim results of HGT. So you've been listening to Uncovering Trusts, a podcast by the Edison Group. If you want to find out more about BRLA and other investment companies that we cover, please visit www.edisongroup dot.com. Thanks a lot.