Liontrust Latin America Fund

The Liontrust Latin America Fund returned 16.7% during the second quarter of 2021, compared with a return of 14.9% for the MSCI EM Latin America Index (comparator benchmark)*.

Global equities had a strong quarter as the global economic recovery gathered steam, while the spread of the Delta variant and a hawkish turn from the Fed added some volatility. Commodity exporters led the way with Latin American markets returning 14.9% and significantly outperforming global markets. The rally in Latin American equities was driven by earnings estimates which were revised 29% higher over the quarter and are now nearly 40% higher than at the start of the year. Higher earnings revisions have been driven to a large degree by the materials and energy sectors, with estimates up 46% and 41% during the second quarter and 95% and 60% since the beginning of the year, respectively.

Brazil was the standout performer rallying by 23% during the quarter, followed by Mexico (+9%). At the other end of the spectrum were Chile (-13%) and Peru (-16%) following elections of the Constitutional Assembly in Chile and President-elect Pedro Castillo in Peru. Chile’s Constituent Assembly will draft a new constitution over the coming twelve months and its composition was more left leaning than had been anticipated, with the ruling coalition failing to reach a third of votes which would have provided a veto on the content of the new constitution. Peru had a very polarised election between centre-right Keiko Fujimori and extreme left Pedro Castillo, with Castillo eventually prevailing in a very tight race. Following the election Castillo’s team have been pushing a more moderate message than during the campaign but uncertainty remains over his economic agenda.

Brazil’s strong returns reflected the swift economic recovery and an acceleration in the vaccine rollout. At the end of the first quarter estimates for economic growth in 2021 were +3.5%, but after first quarter GDP beat estimates this has been revised sharply higher to >5%. This reflects higher commodity prices driving higher capex and exports, and a resilient consumer despite the Covid second wave. Business confidence is at its highest level since 2013. Brazil has seen the sharpest earnings revisions across emerging markets, with 2021 estimates rising by 34% in the second quarter alone.

The Liontrust Latin America Fund returned 16.7% during the second quarter. At the sector level, key positive contributions came from the materials and consumer discretionary sectors in Brazil, while our holdings in Chilean banks were a drag on performance. At the stock level, the top contributors to performance were Vale, Petroleo Brasiliero and Bradespar. With Banco Santander, Banco de Chile and PagSeguro among the detractors.

The expectation remains 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 30.06.21.

**Source: FE Analytics as at 30.06.21.

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.

DISCLAIMER

The information and opinions provided should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.