Liontrust Latin America Fund

Q3 2021 review

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

 

For a comprehensive list of common financial words and terms, see our glossary here.

 

 

Key Risks

 

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested. The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

 

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

 

This information 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. Examples of stocks are provided for general information only to demonstrate our investment philosophy.  It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust. Always research your own investments and if you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.

Friday, October 22, 2021, 2:03 PM