Liontrust Latin America Fund Q3 2021 review | Insights

Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.

The Liontrust Latin America Fund returned -13.1% during the third quarter of 2021, compared with a return of -11.1% for the MSCI EM Latin America Index and the IA Latin America return of-11.8% (comparator benchmarks)*.

Latin American equities had a tough third quarter although there was a wide spread in returns across the region. The MSCI Latin America Index fell by 11.1% dragged down by Brazil (-20%) and Peru (-10%), while Mexico (+3%) and Colombia (+12%) fared much better.

Emerging markets were hit initially by the spread of the Delta strain of coronavirus around the world as well as increased regulatory pressure on technology companies in China. Later in the quarter, the liquidity concerns at Chinese property developer Evergrande and the prospect of an imminent tapering of QE by the US Federal Reserve also raised uncertainty. Fears of contagion from Evergrande and concerns over weaker growth led many metals prices lower, although oil and gas prices continued to move higher as strong demand was being met with supply discipline and disruptions. Iron ore prices were hit particularly hard with prices falling from over $200/ton in June to below $100/ton in mid-September. This contributed to the materials sector falling by 25% over the quarter, although cash flow generation remains robust for the region’s low cost producers even at these lower commodity prices.

OPEC+ is sticking with their plan to add 400kbpd of supply to the market each month as they gradually remove the production cuts that were introduced last year. The success of OPEC+ in managing the market and the impressive discipline from US shale producers means equilibrium oil prices are now a little higher than had been expected earlier in the year. If prices move much higher we would expect OPEC+ to increase supply more quicky rather than allow the US to gain market share or to accelerate the energy transition. The Colombian economy is balancing the benefits of higher oil and coal prices with the prospect of tighter financial conditions as central banks around the world begin winding down QE and raising interest rates given its twin budget and current account deficits.

While there were positive contributions from steel and aluminium producers and ecommerce marketplace Mercadolibre, these were more than offset by declines elsewhere. The global backdrop has deteriorated, especially regarding the woes in the Chinese property sector and slowing growth more broadly, but this appears to be reflected in valuations with the region as a whole trading at a >40% discount to historic levels and Brazil at a 50% discount both to history and to emerging markets. Positive catalysts include receding fears over the property sector in China, easing of the Delta strain of coronavirus allowing more countries to reopen more fully, fiscal stimulus coming from both the US and the European recovery fund, and inflation peaking.

Although the prevailing view remains 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:

	Sep-21	Sep-20	Sep-19	Sep-18	Sep-17
Liontrust Latin America C Acc GBP	19.6	-31.5	18.2	-3.9	29.4
MSCI EM Latin America	22.1	-32.7	12.9	-6.5	21.6
IA Latin America	16.5	-28.4	14.8	-9.6	18.7
Quartile	2	3	1	1	1

*Source: FE Analytics as at 30.09.21.

**Source: FE Analytics as at 30.09.21. Quartile rankings generated on 06.10.21.

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