Fund manager commentary
30 April 2025
Comments from the Portfolio Managers
Please note that the commentary below includes historic information in respect of the performance of portfolio investments, index performance data and the Company’s NAV and share performance.
The figures shown relate to past performance. Past Performance is not a reliable indicator of current or future results.
The Company’s NAV rose by +5.9% in April, outperforming the benchmark, the MSCI Emerging Markets Latin America Index, which returned +3.3% on a net basis over the same period. All performance figures are in sterling terms with dividends reinvested.1
Emerging Markets had another positive month in April, gaining +1.0%, and once again outperforming US and Developed Markets equities despite heightened trade policy uncertainty. Latin America (+6.3%) was the best performing region. Mexico led the way with a +12.3% gain, driven by a relatively low 7%-8% accumulated tariff compared to around 28% in Asia and 20% in Europe. The market was also bolstered by strong exports in the manufacturing sector in the first quarter, as companies front-loaded ahead of tariffs. Meanwhile, Brazil’s market saw a +4.3% increase in April.
At the portfolio level, security selection in Brazil and an overweight position to Mexico were the largest contributors. On the other hand, security selection in Chile hurt.
From a security lens, an overweight position to Brazilian footwear retailer, Azzas 2154, was the largest contributor, rebounding from March lows. Another stock that did well was financial technology and software solutions provider, StoneCo. An underweight position to Brazilian state-owned oil producer, Petrobras, was another relative contributor. The oil price experienced a sharp drop amidst Donald Trump’s tariff threats and concerns around their potential impact on global growth. Lojas Renner, the Brazilian retailer, was also additive to relative returns after a broker upgrade.
On the flipside, the biggest detractor over the month was our overweight position in Brazilian real estate developer, EZ Tec. Whilst the first quarter operational data was decent, the number fell short of buy-side expectations. Brazilian iron ore producer, Vale, was another detractor as the stock fell on the back of a 1Q production miss following heavy rainfall.
Portfolio positioning remained largely unchanged in April. We took profits in B3 and Bradesco, as the stocks have delivered strong relative returns over the past two months while we topped up our position in NU Holdings, which has lagged. We continued to add to our holding in IT services company Globant, on the view that the stock looked oversold ahead of the US tariff announcement.
Mexico remains the largest portfolio overweight as of April end, while Chile is the largest underweight.
Outlook
With Donald Trump securing a second term, there is potential for an acceleration in the already shifting geopolitical landscape. The President has been clear on his “America First” policy since his inauguration, which in our view is supportive of our “World in 3” narrative where we see a world splitting into three groups: those aligned with China, those aligned with the US and the rest (neutrals). Markets have entered a new regime where there is greater division of geopolitical ideology. Trade lines and supply chains are being redrawn, and ‘neutral’ countries, many of which are in Latin America, stand to benefit from this economic fragmentation.
Year-to-date, Latin America has outperformed broader MSCI Emerging Markets Index by as much as 16%, and the MSCI World Index by 20%, proving to be an unlikely defensive candidate amid an increasingly volatile world. Despite this run, Latin American equities are still cheap - notably, the MSCI Emerging Market Latin America Index is currently trading at a discount to both broader Emerging Markets and the US. Yet, the region is still broadly out of favour.
We see interesting bottom-up opportunities particularly in Mexico and Brazil. In Mexico, we do not see a major change in the secular trend of nearshoring of supply chains, as Mexico will remain a much cheaper location to manufacture than the United States. Sheinbaum's pragmatic approach to trade negotiations underscores this view.
In Brazil, we favour companies with lower leverage and stronger earnings outlook. Given cheap valuations, we also see the potential for share buybacks supporting the market in 2025.
1Source: BlackRock as at 30 April 2025
Source: Unless otherwise stated all data is sourced from BlackRock as at 30 April 2025.
Any opinions or forecasts represent an assessment of the market environment at a specific time and are not intended to be a forecast of future events or a guarantee of future results.
This information should not be relied upon by the reader as research, investment advice or a recommendation.
Risk: Reference to the names of each company mentioned in this communication is merely for explaining the investment strategy, and should not be construed as investment advice or investment recommendation of those companies.
