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BlackRock Latin America (BRLA) invests in the stock markets of the developing countries that make up the Latin America region, aiming to generate high long-term total returns through a mixture of economic analysis and stock-picking.
The board have been highly active over the past year in an attempt to revivify the trust and create a more attractive product. Last year it committed to paying out 1.25% of NAV each quarter as a dividend, which would amount to a yield of 5% at a constant NAV, and 5.5% on the current share price. The dividend will be paid out of capital if necessary, so the managers will not have to change their total return focus. So far only three dividends have been paid under the new policy, which is the reason data providers currently show a current yield of 5.2%.
Following the resignation of the previous manager Will Landers, Ed Kuczma and Sam Vecht took responsibility for the trust on 24 December 2018. They have used a rally in the region to take profits in some positions and recycle into more attractively valued stocks. Ed and Sam plan “evolution, not revolution”, with the same house style of using macro-economic analysis to focus their attention on those countries whose economic fundamentals are improving but a renewed emphasis on stock-picking, with individual stocks expected to be more important to returns.
In the managers’ view, the region is looking extremely attractive as a long-term play, with currencies and valuations both depressed, yet economic fundamentals improving. The pro-market government of Brazil’s Jair Bolsanaro also gives reason for optimism about the course of markets.
Since the change of management, the discount has come in from above 17% to closer to 9%. This may be due to both the good performance in the region and the reputation of the new managers. Sam has been involved the success of BlackRock Frontiers over the past decade, which trust has frequently traded on a premium. The downside to the discount is limited by a tender offer due to be implemented in 2021 should the trust not outperform the index or if the discount remains wider than 12% on average.
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