Liontrust Latin America Fund

Q3 2020 review

The Liontrust Latin America Fund returned -9.6% during the third quarter of 2020 compared with a return of -5.7% for the MSCI EM Latin America Index*.

Mexico and Brazil have both had to deal with severe impacts from coronavirus although cases and deaths in both countries have been declining for the past two months. The economic paths have been quite different – Mexico saw a deeper fall followed by a mild recovery, while Brazil managed a more contained decline in activity and a faster normalisation. The key behind this divergence has been the fiscal response in each country. Mexico’s limited support package of just 1.2% of GDP, the lowest in Latin America, reflected a cautious approach to preserve fiscal prudence, while Brazil’s stimulus at 12% of GDP, the highest in the region, has taken a toll on public finances.

Mexico’s GDP dropped by 18.7%yoy in 2Q20 as non-essential activities were suspended in April and May. The economy has reopened gradually since June, but normalisation has been slow and uneven. GDP is forecast to contract by 10% this year before recovering by 3.5% in 2021. On the other hand, Brazil’s economy has been more resilient than most other countries in the region. It contracted by 11.4%yoy in 2Q20, and 2020 estimates have been revised upwards from -7% to -5%. The government’s ambitious aid program has helped households and businesses deal with the economic impact of coronavirus, but it has put further pressure on public finances which were already stretched prior to the pandemic. The key for Brazil, therefore, is to provide a credible plan to shore up the fiscal accounts over the medium term. The administrative and tax reforms are an important part of this, along with privatisations. The administrative reform is expected to save R$300bn over ten years, and while the tax is aimed to be neutral for revenues, a simpler tax system should help drive the denominator in the debt/GDP ratio. Following the sanitation reform earlier this year, the first privatisation happened at the beginning of October with Brookfield winning the concession in Alagoas for R$2bn and a further R$2.5bn of investment. The success of this auction could encourage other municipalities to explore privatisations which would both promote investment and improve water and sanitation coverage across Brazil.

The primary detractors from performance were Brazilian utilities and homebuilders, and Mexican banks. Despite the positive fundamental momentum in the utilities sector, fiscal concerns drove longer term yields sharply higher which weighed on valuations. Similarly for the homebuilders, where companies are reporting record numbers, the impact of yields has outshone fundamentals. As yields stabilise we think these strong fundamentals will support a recovery across these two sectors.

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







Liontrust Latin America C Acc GBP






MSCI EM Latin America







*Source: FE Analytics as at 30.09.20.


**Source: FE Analytics as at 30.09.20


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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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Wednesday, October 21, 2020, 8:59 AM