Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
45. Uncovering Trusts – BlackRock Latin American Investment Trust (BRLA): Volatility can provide compelling opportunities
87 Plays4 days ago
In this episode, our director of content, investment trusts Milosz Papst provides an update on BlackRock Latin American Investment Trust. After giving a quick refresher about the company, he discusses the Latin American investment backdrop, where valuations look very attractive. He then highlights the importance of upcoming election cycles, before delving into the managers’ views about the prospects for the region. Discussion then turns to the trust, starting with the stock selection process, where favoured companies tend to be high-quality businesses at reasonable valuations, which may be overlooked by other investors. He then provides information about the portfolio, where the managers are happy to invest in some of the smaller and non-index countries, although it is important to understand that a large part of the portfolio is likely to be made up of Brazilian and Mexican stocks as these two countries make up around 90% of the MSCI Emerging Markets Latin America Index, which is the trust’s benchmark. He highlights a few of the largest portfolio holdings before discussing performance, which has been positive this year in both absolute and relative terms. To wrap up the podcast, he focuses on the dividend policy, where income is an important element of the trust’s total return objective, and highlights the discount control mechanism, which includes a tender offer based on the trust’s performance and average discount over a four-year period ending 31 December 2025.
***********************************************************
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/
Recommended
Transcript
Introduction of Guests and Topic
00:00:00
Speaker
See you.
00:00:05
Speaker
Welcome to Uncovering Trusts, a podcast by Edison Group. I'm your host, Will Manuel, and today i'm joined by Milos Pabst, Director of Investment Company Content at Edison.
00:00:16
Speaker
We'll talk about BlackRock Latin America and Investment Trust, whose ticker is BRLA. Milos, thanks for joining us today. Thanks for having me. So it's been more than a ah year since we last got together to talk about this trust. ah What's changed since then?
00:00:32
Speaker
Yes, happy to discuss it. with But before we get into that, i think it would be useful to start with a very quick refresher. um if you remember, BRLA the only available closed-end Latin American fund.
00:00:44
Speaker
It was launched in July 1990 and has been managed by BlackRock since March 2006.
Management Changes at BRLA
00:00:51
Speaker
The trust's 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 currencies.
00:01:04
Speaker
BRLA's performance is benchmarked against the MSCI Emerging Markets Latin America Index. The trust employs an active gearing ah with a neutral level of 105% of NAV and a typical range of plus minus 10%, approximately 0 to 25% of net assets.
00:01:24
Speaker
And so currency exposure is unhatched. ah The trust still has two managers, but there has been a change since our last podcast episode. Back in April, the board announced the appointment of Gordon Fraser as a co-manager, replacing BRLA's former a deputy portfolio manager.
00:01:43
Speaker
Gordon is a managing director and along with the trust's lead manager, Sam Wecht, is co-head of the Emerging Markets and Frontiers team as part of BlackRock's fundamental equity global emerging markets platform.
00:01:57
Speaker
Although Gordon's BRLA appointment is relatively recent, he and Sam have worked together for nearly 20 years.
Market Volatility and Growth in Latin America
00:02:03
Speaker
and Okay, so should we now set the scene by discussing the Latin American investment backdrop?
00:02:10
Speaker
I think it is important to start at a high level. ah Latin American investors need to remember that while the region can deliver very attractive returns, the market can be volatile. And the last few years, i think I've provided a good example of this.
00:02:24
Speaker
BRLA's benchmark is the MSCI Emerging Markets Latin America Index, as I've just mentioned, which has around 80 constituents across five countries. ah Looking at performance in US dollar terms, 2023 was a good year with the index rallying 33%, but 2024 was, well, a year to forget as the index declined by 26%.
00:02:46
Speaker
However, investors that stayed the course have been rewarded as in the first nine months of 2025, the MSCA Latam index was up by more than 40%. Wow. ah So with that volatility in mind, what are some other important features of Latin America?
Political Influences on Latin American Markets
00:03:03
Speaker
To start with, the region has better growth prospects compared with developed economies in aggregate. In its latest World Economic Outlook, the IMF's Latin America plus the Caribbean um GDP growth projections of 2.3% for 2025 and for compared with one point six percent in each year for advanced economies um Latin America also remains very attractively valued.
00:03:29
Speaker
On a forward P multiple basis, the region is trading at around a 50% discount to the global market ah while offering a considerably higher dividend yields.
00:03:40
Speaker
Latin is also trading on meaningfully lower valuation multiples versus global emerging markets. Over time, the region has become overlooked, which may provide a good opportunity for global investors willing to venture outside of the traditional destinations of you know North America, Europe and Asia.
00:03:59
Speaker
Over the last 10 years, Latin America as a percentage of the MSCI emerging markets index has declined around 10 percentage points to just 7%. And um what about other areas of focus in Latin America?
00:04:13
Speaker
um Market volatility can be politically driven, has in Latin America there is often a large divergence between political parties. So a change in the country's leadership can lead to large share price movements.
00:04:24
Speaker
um Over the next 12 months, there is a busy presidential election calendar with a good chance that some of the incumbent leaders will be challenged. Right. um So having provided that backdrop, what are the managers currently thinking about the region?
Economic Outlook and Investment Strategy
00:04:38
Speaker
Sam and Gordon remain bullish on the outlook for Latin America despite its strong performance so far this year because of the region's attractive, absolute and relative valuations. um They believe that tensions between Brazil and the US are unlikely to have lasting economic consequences given Brazil's exports to the US have declined over the last decade.
00:05:00
Speaker
um China is now Brazil's largest trading partner. um and the proposed US tariffs should have a limited real impact. um The managers expect an easier monetary policy in Brazil as inflation is slowing faster than expected, which should provide a boost to the Brazilian economy.
00:05:17
Speaker
ah They also anticipate continued extensive trade between Mexico and the US, although membership of the USMCA um Free Trade Agreement, which began during President Trump's first term in office, ah does not protect Mexico from the imposition of US tariffs.
00:05:34
Speaker
Mexico is continuing to benefit from the trend of near-shoring supply chains. ah For example, Asian technology companies establishing manufacturing capacity in Mexico to serve the US export markets.
00:05:45
Speaker
Thank you. um Perhaps we can move our attention back to BRLA, starting with the stock selection process. Yes, sure. um So in essence, Sam and Gordon's approach is style agnostic.
00:05:57
Speaker
They seek out opportunities that are not favored by other investors while avoiding areas of high interest. They can draw on the extensive resources of BlackRock's London-based emerging markets team, which can provide both top-down and bottom-up analysis.
00:06:14
Speaker
ah The managers suggest that over time, bottom-up is typically the driving factor of risk, but that top-down considerations are also important. They aim to generate so long-term capital growth and an attractive total return from a high-conviction portfolio of 30 to 50 Latin American equities um that is diversified by geography, sector, and market cap.
00:06:37
Speaker
Some in Gordon look for companies where they have a differentiated view on earnings with one-to-two-year horizon. ah They focus on businesses with 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 reasonable valuations.
00:06:58
Speaker
ESG considerations are also a part of the bottom-up analysis. And what are the main features of the portfolio?
BRLA's Portfolio Composition
00:07:04
Speaker
Yeah, so two countries make up the lion's share of the Latin American index. ah Brazil around 60% and Mexico around 30%, with the remaining 10% split between Chile, Peru, and Colombia.
00:07:16
Speaker
Although these countries make up the bulk of the portfolio, the managers also find an interesting opportunities in some of the smaller Latin American economies, including those not included in the index, such as Argentina, Panama, or Uruguay.
00:07:31
Speaker
As so stocks are selected on a bottom-up basis, the trust sector weightings can differ meaningfully from those of the index. We realize three largest sector allocat allocations are financials, which has an underweight exposure versus the benchmark, while materials and industrials both have above index weightings.
00:07:48
Speaker
Together, these three sectors make up 60% of the portfolio. Okay, and can we draw down and highlight some of the stocks? um Sure. ah The Trust's top 10 holdings make up around half of the portfolio and operate across a range of industries.
00:08:01
Speaker
As alluded to above, the managers are not restricted to investing in companies that are included in the benchmark. um So here are a few of BRA's largest positions. Grupo Financiero Banorte is one of the largest Mexican banking and financial services holding companies ah with a wide range of operations, including broker dealer, insurance and mutual funds.
00:08:23
Speaker
Rydorso Luiz is a Brazilian hospital chain offering medical and hospital care services in various areas, including women's health care, oncology and neurology.
00:08:35
Speaker
Rumo is the largest railway operator in Brazil, providing logistics services primarily for exporting commodities. um Southern Copper's largest mining operations are in Peru.
00:08:45
Speaker
And so Walmart de Mexico y Centro America, also known as Walmart, is a regional division of U.S. discount retail Walmart. um Sometimes the managers seek additional value by investing in different share types.
00:08:59
Speaker
A current example is the Brazilian miner Vale, where the trust's exposure is broken down between common equity shares and American depository shares.
00:09:11
Speaker
Okay,
BRLA's Performance and Dividend Policy
00:09:12
Speaker
thanks. And how has the portfolio been performing this year in and a rising market? BRLA's relative performance is improving this year, having had a difficult 2024 when the Latin American market fell sharply, as discussed so just a moment ago, and the managers were too optimistic about the Brazilian economy.
00:09:31
Speaker
In H1 2025, ending 30th of June, the trust's dollar-based NAV and share price total the returns of 40.4% and 41.7% respectively, were considerably ahead of the benchmark's 29.9% total the return.
00:09:50
Speaker
ah This was BLA's strongest half-year performance more than five years and was held by an overrate position in stock selection in Brazil. The managers believe that investing in Latin America requires patience and discipline to maintain or add to positions during tough times in the market.
00:10:07
Speaker
While the region can be volatile, they look to stay invested throughout cycles as they consider the strategy is key to capturing long-term value in Latin America.
00:10:18
Speaker
Wow, that that is encouraging. so so Thank you for that. um Moving on, so far we've focused mainly on BRLA's capital return potential. As the trust has a total return objective, should we turn to the dividend policy?
00:10:32
Speaker
Of course. um Since July 2018, quarterly dividends are paid, each of which are equivalent to 1.25% of BRLA's calendar quarter-end US dollar NAV.
00:10:44
Speaker
This policy aims to help narrow the trust's discount by making by making it more attractive to income-orientated investors. um There is flexibility as distributions can be paid out of income or capital.
00:10:56
Speaker
ah This ensures that the managers are not forced to seek a higher portfolio yield, which may be at the expense of capital growth.
Managing Discount Volatility
00:11:05
Speaker
Thank you. um Before we wrap up this podcast, could you remind us about the trust discount control mechanism?
00:11:11
Speaker
Sure. um The board employs a discount control mechanism aiming to reduce BRLA's discount volatility, favoring a conditional tender offer rather than repurchases.
00:11:23
Speaker
Subject to the biannual continuation vote 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 over the four years ending on 31st December 2025, or if BRLA's average share price discount to come in-come and EV exceeds 12% of this period. so While the trust relative performance has been strong in 2025, there is still a way to go to meet the performance hurdle.
00:11:55
Speaker
Great. Thank you for an interesting insight into this unique regional investment trust. 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 we cover, please visit www.edisongroup.com.
00:12:13
Speaker
So,