The Liontrust Latin America Fund returned 12.4% during the quarter, compared with a return of 12.6% for the MSCI EM Latin America Index and 11.8% for the IA Latin America sector (both comparator benchmarks)*.
Latin American equities had a strong end to the year, spurred on by increased confidence in a soft landing for the US economy and expectations the Federal Reserve will begin cutting interest rates in 2024. Fourth quarter returns of +12.5% for the market comfortably outpaced both emerging (+3.3%) and developed (6.7%) markets, taking the full year returns to +25.2%, again well ahead of both emerging (+3.6%) and developed (+16.8%) markets. All markets in the region generated positive returns in the final quarter, with Argentina (+29%) leading the way with the election of Javier Millei, followed by Peru (+17%) and Brazil and Mexico (+11-12%).
Central banks across the region moved early and decisively to raise interest rates to combat inflation, with Brazil hiking rates a full year ahead of the Fed. With inflation down sharply in most countries, central banks have been able to continue cutting interest rates. Chile has cut rates by 300bps, Brazil by 200bps, Peru by 100bps and finally Colombia by 25bps. Lower interest rates will continue to be a theme through 2024 with Mexico likely to begin its own cycle in the first quarter.
After 30 years in the making, Brazil’s Congress passed a historic tax reform aimed at simplifying the tax system by combining many federal and state taxes into just two. Despite fears over the prospects for structural reforms when Lula was elected a year ago, Congress has had a productive year with a new fiscal framework, the tax reform, and even further privatisations. 2024 will be another busy year on this front with more wide ranging reforms, infrastructure concession auctions and privatisations expected.
In terms of portfolio attribution, the drivers of relative performance included Brazilian financial services company Itau Unibanco, Brazilian multinational Vale, and Brazil-based multi-category equipment leasing platform Armac Locacao Logistica e Servicos. Among the detractors over the quarter was fraud management and chargeback protection services company Clear Sale.
Latin American equities are trading at 9x forward earnings, a more than 20% discount to the broader emerging markets and 20% discount to the ten-year history. Even as global recession fears have eased, significant risks still seem to be priced into regional equities.
Discrete years' performance (%) to previous quarter-end:
|
|
Dec-23 |
Dec-22 |
Dec-21 |
Dec-20 |
Dec-19 |
|
Liontrust Latin America C Acc GBP |
17.8% |
15.2% |
-16.1% |
-18.1% |
23.2% |
|
MSCI EM Latin America |
25.2% |
22.6% |
-7.2% |
-16.5% |
12.9% |
|
IA Latin America |
23.2% |
16.4% |
-11.5% |
-14.9% |
15.4% |
|
Quartile |
4 |
4 |
4 |
4 |
1 |
*Source: FE Analytics, as at 31.12.23, primary share class, total return, net of fees and income reinvested.
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 the Fund involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The Fund may invest in emerging markets/soft currencies or in financial derivative instruments, both of which may have the effect of increasing volatility. The Fund holds a concentrated portfolio of stocks, if the price of one of these stocks should move significantly, this may have a notable effect on the value of the portfolio.
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