Liontrust Latin America Fund

• Weakness in Latin American equities was concentrated in the region’s two largest markets of Brazil and Mexico, in large part due to the depreciation of the real and peso.
• There were some bright spots with strong positive returns coming from our holdings in Argentina which included shale oil and gas company Vista Energy and leading cement producer Loma Negra, as well as Brazilian protein companies BRF and JBS.
• Latin American equities are trading at just 8x forward earnings, a 30% discount to the broader emerging markets and its own ten-year history.

The Liontrust Latin America Fund returned -7.1%* during the quarter, compared with a return of -9.9% for the MSCI EM Latin America Index and -10.2% for the IA Latin America sector (both comparator benchmarks).

The fourth quarter of 2024 rounded off a tough year for Latin American equities, with the MSCI Latin America Index falling by a further 9.9% (sterling terms) and taking full year returns to a -25%, giving back the strong outperformance of global markets from the prior two years. However, the weakness was concentrated in the region’s two largest markets of Brazil and Mexico which combined account for nearly 90% of the MSCI Latin America Index; both fell by 26% to 28% in large part due to the real and peso depreciating by 20%. Elsewhere, Chilean equities were strong excluding lithium producer SQM; Colombia and Peru returned between 10% and 20% and Argentina was the best performing market globally, rising by more than 100%.

The pressure on Brazilian assets, and the real in particular, stemmed both from higher US yields and the ongoing strength in the dollar, a trend exacerbated by the election of Donald Trump, as well as concerns over the Lula government’s commitment to fiscal responsibility with government debt once again moving higher. This is despite the strength in the domestic economy which again grew by more than 3% in 2024 and saw unemployment continue falling to record lows. Weakness in Mexico began after the presidential election in June with the incumbent left-wing Morena party exceeding expectations and nearing a supermajority in both houses of Congress with concerns over the likely weakening of the institutional and legal framework that has managed to keep Andrés Manuel López Obrador largely in check through his six-year term. This, again, was exacerbated by the US election with fresh uncertainty over Trump’s policies towards trade, security and immigration, and what this might mean for the relationship with Mexico and specifically the immense nearshoring opportunity.

Meanwhile, the strength in Argentina resulted from the extraordinary progress towards economic normalisation that President Javier Milei has made since taking office in January, which is particularly impressive given the state of the economy he inherited. He followed through on his campaign promises to drastically cut public spending immediately, delivering a budget surplus in the first month (January 2024) and each month since – Argentina's first budget surplus in 16 years. Inflation was running at 25.5% month-over-month in December 2023 and this has collapsed to 'just' 2.4% for November. While this is still nearly 40% annualised, it is clearly much improved and has broken the hyperinflationary spiral that had been in place, allowing Milei's popularity to remain high despite the recession that resulted from his policies of austerity. Now, as the economy recovers and is expected to accelerate through 2025 while inflation continues to fall, his popularity should remain high enough to continue with his reform efforts.

One of the major challenges facing Milei has been his lack of representation in Congress, with his party having just 15% of lower house seats and 8% in the Senate. However, with Milei's popularity remaining high and the economy emerging from recession, the midterm elections in October 2025 will provide an opportunity to increase his party's presence in both houses and improve governability. Much remains to be done but Argentina is firmly on the path to macro normalisation.

After a big shift to the left in recent years, there's a strong chance that more business-friendly governments will take charge in upcoming elections. Chile is up next in November with Evelyn Matthei leading early polls. Her centre-right Chile Vamos coalition has gained ground in local elections this year and she is both highly popular and well regarded as mayor of Providencia in Santiago. Presented as a moderate, pragmatic alternative to both the far right- and left-wing coalitions, Chile Vamos will focus on addressing public demands for economic stability and security while steering clear of polarising policies, a helpful set of priorities for the business community and investors.

The Liontrust Latin America Fund fared better than the benchmark but still delivered negative absolute returns, falling 7% in the fourth quarter and 19.9% over 2024, outperforming by nearly 3% and over 5%, respectively. As mentioned above, there were some bright spots with strong positive returns coming from our holdings in Argentina which included shale oil and gas company Vista Energy and leading cement producer Loma Negra, as well as Brazilian protein companies BRF and JBS.

Latin American equities are trading at less than 8x forward earnings, a more than 30% discount to the broader emerging markets and their own 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:

*Source: FE Analytics, as at 31.12.24, 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. Overseas investments may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of the Fund. The Fund may encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings. Investments in emerging markets may involve a higher element of risk due to less well-regulated markets and political and economic instability. This may result in higher volatility and larger drops in the value of the fund over the short term. Outside of normal conditions, the Fund may hold higher levels of cash which may be deposited with several credit counterparties (e.g. international banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash. Counterparty Risk: any derivative contract, including FX hedging, may be at risk if the counterparty fails. ESG Risk: In reference to any component (where applicable) of a fund's investment process that uses external ESG data, there may be limitations to the availability, completeness or accuracy of ESG information from third-party providers, or inconsistencies in the consideration of ESG factors across different third party data providers, given the evolving nature of ESG. There is no guarantee that an absolute return will be generated over a three year time period or within another time period.

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