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Trump's wall? We own Mexican cement

BlackRock Latin American manager Will Landers tells Kate Beioley why Brazil, Argentina and Mexico give him confidence
May 5, 2016

BlackRock Latin American Investment Trust (BRLA) has posted double-digit returns in the year to date, benefiting from a seismic shift to the right across Central and South America. Fund managers are shedding no tears at the defeat of the Latin American left. After years of dismal returns Brazilian, Argentine and Mexican stocks have travelled from the bottom of the global pile to the top. But can Will Landers, manager of BlackRock Latin American Investment Trust, catch up with his benchmark to really reap the benefits?

Latin America is one of the most newsworthy investment regions in the world at the moment and a shock outperformer after years of dismal returns. In Brazil, president Dilma Rousseff is clinging to power, but looks set to be wrenched from her seat by impeachment proceedings, while MSCI Brazil Index is up 35.1 per cent in the year to date. And following the election of president Mauricio Macri, Argentina has returned to the international debt markets for the first time since 2001, with an oversubscribed $16.5bn bond issue.

"Latin America did move to the left in the last decade and became un-investable in the case of Argentina. But looking at Brazil, Argentina and Mexico gives us confidence and that makes it more appealing," says Mr Landers.

BlackRock Latin American Investment Trust might be celebrating now, but it has had a tough time over the past four years. The MSCI Brazil index lost almost 40 per cent last year and the trust's benchmark, MSCI Emerging Markets Latin America Index, lost 27 per cent in 2015, 6 per cent the previous year and almost 15 per cent the year before that. BlackRock Latin American has lagged behind even that. Last year it underperformed the index, losing 28.7 per cent and in five years has lost more than 45 per cent against a benchmark loss of 34.4 per cent.

The trust has recently blamed underperformance on underweight positions in Chile, one of the strongest performers last year, and an overweight position in Peru. Overweight positions in Brazilian stock Kroton Educacional (KROT3:SAO) and insurance stock BB Seguridade Participaçóes (BBSE3:SAO) also held back performance.

BlackRock Latin American remains heavily underweight in Chile and overweight in Brazil, but Mr Landers says he has made major changes and the scene is set for him to turn things around. Latin American bank Itaú Unibanco (ITUB:NYQ), Brazilian bank Bradesco (BBD:NYQ) and Brazilian brewing company Ambev (AVEVB) make up the top three. Brazil has also taken over from Mexico as the largest allocation, now accounting for more than 50 per cent of assets.

"Bradesco was trading at or below book at one point," says Mr Landers, who says financials as a sector are "looking attractive", particularly in Brazil, where he says banks have "been conservative" and now offer good value.

Notably state-owned energy giant Petrobras (PETR3:SAO) - at the centre of a corruption scandal that engulfed Ms Rousseff last year - has also inched back into his top 10 for the first time in two years based on the prospects of a change in government. He has a low weighting to consumer stocks relative to the benchmark, which he says "will be the last to benefit" from improved economic conditions in Brazil and other countries.

Mr Landers is also fond of Mexico - it was the largest country weight in the portfolio at the end of February, before being overtaken by Brazil last month. He says: "Performance has been strong since Enrique Peña Nieto became president" and notes the administration's pre-emptive move to "keep a lid on expenses".

He adds: "The market is one of the more expensive, though, trading on 17.2 times 2016 earnings, and it is not without its own major struggles."

He acknowledges that there are major issues facing Mexico, not least in terms of security. But he is unimpressed with discussion of what US presidential candidate Donald Trump's Mexican wall could mean for the market, looking blank before shooting back: "We own [Mexican cement company] Cemex SAB (CX:NYQ)."

Mr Landers has a universe of around 250 stocks to invest in and looks for undervalued companies with a growth at reasonable price (Garp) focus, but he says a macro focus is unavoidable as top-down factors are the key drivers of these markets. "We know the 250 companies very well and will shift the focus depending on what's going on," he explains. "Some are more macro calls and some are more micro calls."

And getting those calls right will be key if he hopes to make the most of this year's rally in order to beat his benchmark again.

 

Will Landers CV

Will Landers has managed BlackRock Latin American Investment Trust since 2006. He joined Merrill Lynch Investment Managers (MLIM) in 2002 as an analyst, and this company merged with BlackRock in 2006. At MLIM, Mr Landers managed the firm's Latin American equity funds and was a member of the global emerging markets equity portfolio management team.

He started his career at Bear Stearns as an investment banker covering Latin American clients and after three years joined Lehman Brothers, where he became director of Latin American research. Between 1999 and 2003 he worked at Credit Suisse.

Mr Landers has a degree in finance and international management from Georgetown University.