Liontrust Latin America Fund

• Latin America has fared better than other regions from the imposition of US tariffs, enhancing its competitive position for trade with the US relative to the majority of the rest of the world.

• 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 across the region.

• Even as global uncertainty has risen, significant risks are already priced into regional equities; 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 7.9%* during the quarter, compared with a return of 9.4% for the MSCI EM Latin America Index and 8.5% for the IA Latin America sector (both comparator benchmarks).

After a torrid 2024, the first quarter of 2025 was much kinder to Latin American equity markets despite the notable volatility that came with the inauguration of Donald Trump for his second term as US President and considerable policy uncertainty. Latin American equities returned 9.4% during the quarter, well ahead of both emerging markets (-0.1%) and developed markets (-4.7%).

Trump’s policies in his first 100 days have been wide ranging with far reaching consequences, but most attention has focused on trade and the implementation of universal tariffs. Here, Latin America has fared better than other regions with baseline 10% tariffs applied to Brazil, Argentina, Chile, Peru and Colombia, while Mexico continues to enjoy tariff-free trade for goods covered by the USMCA trade agreement. This has enhanced the region’s competitive position for trade with the US relative to the majority of the rest of the world. These lower tariffs reflect the dramatic transformation that Latin American trade flows have undergone this century. In 2000, the US was the main trading partner for every country in Latin America; now China has taken its place for most countries, with Mexico and Colombia being the notable exceptions. Latin America trades less than the global average, has so far been treated better by the US, and most of the trade it does do is no longer with the US, shielding it further from the first order impact of Liberation Day.

In the case of Mexico and Colombia, where the US remains the most important trading partner, both have seen their competitive position improve against the rest of the world, but are more likely to be impacted by global growth concerns – for Mexico given its strong economic linkages with the US, and for Colombia the importance of oil prices which may fall if global growth slows.

The sharp spike in policy uncertainty has led to a much weaker US dollar and suggestions that US exceptionalism may be fading. A weak dollar benefits emerging markets in a number of ways, but most relevant now is the impact stronger domestic currencies can have on inflation and inflation expectations, allowing central banks to lower interest rates more aggressively than had previously been expected and providing some relief from easier financial conditions. This is especially pertinent in Brazil where the central bank reverted to hiking interest rates again in the second half of 2024. Even as global growth expectations slow, this can provide support to domestic growth drivers and relieve some of the pressure on the government to cut spending. This in turn will allow the market to look ahead to next year’s elections. With Lula’s popularity falling fast, it is looking increasingly likely that a candidate from the right will be in a strong position when campaigns begin.

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 across the region. 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 Fund’s positive contributions came again from Brazilian utilities and e-commerce giant Mercadolibre, as well as Mexican microfinance provider Gentera, partly offset by weakness in Argentina after last year’s strong run.

Latin American equities are trading at just 8x forward earnings, a 30% discount to the broader emerging markets and its own ten-year history. Even as global uncertainty has risen, significant risks are already priced into regional equities.

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

*Source: FE Analytics, as at 31.03.25, 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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