Follow the man – or woman – not the fund is a reasonable rule of thumb for shareholders in investment trusts. A skilled stock picker or fund manager can often add value to the underlying assets selected in a way that brand names or corporate wrappers rarely can.
So I am delighted to report Sam Vecht has got off to a flying start at BlackRock Latin American (BRLA), where I have been a shareholder for many years. No disrespect to the outgoing fund manager, Will Landers, but this trust had recently tested even experienced emerging markets investors’ patience, prompting a revival of the old Square Mile joke that Brazil is the country of tomorrow – and always will be.
Since the announcement at the start of this year that Vecht is taking the helm, BRLA’s net asset value (NAV) has jumped by 14.2% and the shares are up 13.2% but remain priced at an old-fashioned discount of 14.8% to NAV, according to independent statisticians Morningstar. This blizzard of numbers could add up to a buying opportunity for investors willing to brave higher risks in pursuit of higher returns.
To be fair to Landers and Vecht, the reasons are partly political rather than personal. As pointed out here last year, BRLA beat the downward trend in global share prices during ‘Red October’ because of rising expectations ahead of the election of a former paratrooper called Jair Bolsonaro.
Not everyone would regard being called ‘the Latin American Trump’ as a compliment but both right-wing populists have had similar effects on stock markets. I hope I am allowed to say that after topping up my modest stake in Fidelity China Special Situations (FCSS) and noting the potential advantages of ‘president for life’ Xi Jinping last week. As a political agnostic, at least I can accept that different countries may follow opposing paths to prosperity.
It’s more than 20 years since I was lucky enough to report from Latin America as part of what financial hacks used to call the ‘emerging markets world tours’ of the 1990s. Now, as then, much depends on the price of oil, coal and soya beans; both hard and soft commodities in which Brazil and other Latin American countries are abundant.
Commodities also provide a topical example of how Brazil can benefit from problems elsewhere. Since America and China began trading threats of tariff hikes instead of goods and services, the oriental superpower has switched sourcing sufficient soya beans to help feed nearly a quarter of humanity from America to Brazil.
So north America’s loss has been the south’s gain. If the United States’ currency continues to weaken, that will accelerate Latin America’s economic revival by reducing the local value of largely dollar-denominated debt.
But there are few economic situations so promising that politicians cannot muck them up, as the ongoing tragedy of Venezuela demonstrates. I saw for myself what a dynamic place Caracas was before Hugo Chavez was elected in 1999 and, during the following 14 years, he managed to reduce the population of a country with the biggest oil reserves in the world to a state of starvation.
Now poor old Venezuela and even once-mighty Argentina account for a negligible portion or less than 1% of BRLA’s net assets and, instead, 73% are allocated to Brazil, followed by 21% in Mexico and 3% in Chile.
City cynics used to say you had to be nuts to invest in Brazil but I beg to disagree. This long-term investor has good reasons to be grateful to Landers for share price returns of 53% and 130% over the last five and 10 years respectively.
But yesterday's river grinds no flour. More positively, Vecht’s record at BlackRock Frontiers (BRFI) – one of the few emerging markets trusts to consistently trade at a premium to NAV – suggests BRLA’s recent woes may soon be forgotten and happy days lie ahead.
Here is a complete list of Ian Cowie’s stock market investments. It is not financial advice nor is any recommendation implied.