Liontrust Latin America Fund

The Liontrust Latin America Fund returned -9.1% during the first quarter of 2021, compared with a return of -6.2% for the MSCI EM Latin America Index (comparator benchmark)*.

Latin American equities had a tough start to 2021 although there was a wide spread in returns across the region. The MSCI Latin America Index fell by 6.2% dragged down by Colombia (-18%) and Brazil (-12%), while Mexico (+3%) and Chile (+15%) fared much better.

The global backdrop is balanced between the positives of an accelerating vaccine rollout in many parts of the world, President Biden signing into law the $1.9tn stimulus package and beginning work on an infrastructure plan, offset by setbacks with vaccinations in Europe and a third wave seeing new restrictions put in place. The scale of US stimulus has helped spur commodities higher with oil also supported by OPEC+ prolonging production cuts and delaying the return of spare capacity to the market. At the same time, it has fuelled concerns about the potential for higher inflation with the yield curve steepening and the US 10-year yield reaching levels not seen since late 2019 before the pandemic hit.

Around the world countries are beginning to differentiate themselves by the speed of their vaccination programs. In this regard, Chile is one of the global leaders having vaccinated the entire at-risk population and expected to be the first emerging market to achieve herd immunity by immunising 80% of the population by the end of the second quarter. This should allow the country to lift restrictions ahead of many other parts of the world. Chile is also a clear beneficiary of higher copper prices which account for 50% of exports and nearly 15% of GDP. Strong demand is coming from the adoption of electric vehicles and also the need for more investment in electricity transmission grids to support the rising supply of renewable power generation. The economy will benefit from both higher prices and increased investment in new supply.

Despite benefiting from higher oil prices, Colombia remains vulnerable to tighter global financial conditions through its twin current account and budget deficits. Brazil’s current account is in much better shape than previous episodes of higher yields in 2013 and 2015, although a credible fiscal plan is required to raise confidence in the sustainability of government debt. Following the pension reform, further progress is being made with privatisations and the drafting of tax and administrative reforms although the pandemic has delayed these measures. Negative catalysts during the quarter included the worsening trend in Covid cases and deaths, as well as the unexpected change in the CEO of Petrobras as the combination of a weaker currency and higher oil prices led to material increases in domestic fuel prices.

The Liontrust Latin America Fund declined by 9.1% during the first quarter. Positive contributions came from holdings in Chilean banks and mining companies Vale and Grupo Mexico, while relative underperformance was driven by holdings in consumer discretionary and utilities sectors in Brazil.

The expectation is that 2021 will be a year of rapid recovery and that life will have more or less returned to normal by the end of the year. Although the prevailing view is that 2021 will bring us back to normality, some developments seen in 2020 will persist. Distinguishing between cyclical and structural changes is important in understanding the outlook for 2021 and beyond.

Discrete years' performance (%), to previous quarter-end:

*Source: FE Analytics as at 31.03.21.

**Source: FE Analytics as at 31.03.21.

KEY RISKS

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. Investment in funds managed by the Global Equity (GE) team may involve investment in smaller companies - these stocks may be less liquid and the price swings greater than those in, for example, larger companies. Investment in funds managed by the GE team may involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The team may invest in emerging markets/soft currencies or in financial derivative instruments, both of which may have the effect of increasing volatility. Some of the funds managed by the GE team hold a concentrated portfolio of stocks, meaning that if the price of one of these stocks should move significantly, this may have a notable effect on the value of that portfolio.

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