Investing in large caps: BlackRock Latin American

BRLA is investing in large caps yielding >10% on single-digit P/Es…by Thomas McMahon

Overview

 
BlackRock Latin American (BRLA) invests in the emerging economies of Brazil, Mexico, and their neighbours, offering exposure to huge, growing middle-class, and resource-rich economies, many of which have advantageous positions vis-à-vis trade with the US and China.

Despite volatility surrounding US trade policy, Latin America has delivered strong returns in 2025 so far and BRLA has significantly outperformed . This follows a poor year in 2024 in which the region sold off significantly. It’s worth pointing out that despite this poor 2024, the region has more than doubled the returns of the broader emerging market index over five years , with returns in the latter having been driven by China (see Performance). Nevertheless, Latin American equities remain cheap. Indeed BRLA’s lead manager, Sam Vecht, has been able to invest in some strong large-cap businesses offering double-digit dividend yields and trading on single-digit P/Es (see Portfolio).

Domestic politics hampered the Brazilian and Mexican equity markets last year and is a regular source of volatility in the region. For different reasons, Sam thinks the outlook for both countries is improving, and has overweight positions versus the benchmark, reflecting that conviction.

BRLA is the only investment trust focussing on the Latin American region and offers an attractive dividend yield as well as growth potential. The trust pays out 1.25% of the NAV in dividends each quarter, equivalent to a running yield of 5% on an annualised basis.

BRLA trades on a discount of 12.2% at the time of writing versus a five-year average of 10.9%. The board has committed to a 24.99% conditional tender offer if performance or discount conditions are not met as of 31/12/2025. These targets and the current position are discussed under Discount.

Analyst’s View

We think recent events have shown the dangers of relying on a market-cap-weighted index as a rational way to invest. Over recent years, global indices have become more and more concentrated in US equities. We think this has led to a vicious cycle of disinterest in smaller regions leading to investors selling or sticking to one or two stocks in diversified GEM funds, which then leads to even greater decline as a proportion of broad indices. Trump’s policies, wherever they end up, seem like they have burst the bubble of US exceptionalism, and globally investors will be seeking greater diversification and reassessing their view of political risk in the US. If US dominance is to decline, then it is worth considering which regions have mostly been overlooked in the dash for large-cap, globalised tech stocks. For us, Latin America is an obvious place to look. It has structural growth drivers: Brazil alone has the third largest middle class in the GEM universe; it is rich in natural resources—many of which are essential for the energy transition—and has good trading relations with the US and China.

Latin American equity valuations remain attractive, despite the strong performance year-to-date ; Brazil, for example, is still trading at cheap valuations relative to its own history. Sam thinks the Brazilian political climate is likely to shift in a more market-friendly direction, and this plus cheap valuations is creating potential for a rally in the coming months and years. We think the low valuations, compounded by BRLA’s discount, and the potential for exceptional returns when the cycle is in its favour makes BRLA an attractive supplement to a diversified portfolio, but the risks of the region always have to be borne in mind when it comes to position sizing and expectations for volatile returns.

Bull

• Region is well placed in the long term in the context of of geopolitics and access to vital commodities
• Offers a 5% annualised yield on NAV
• An experienced management team with deep resources to draw on

Bear

• Energy and commodity markets can be economically sensitive which could bring high beta in a global recession
• Latin American markets and politics can be extremely volatile
• Any gearing used brings greater exposure to falling markets, as well as rising markets

See the latest research on BRLA here >
 

 
_{Disclosure – Non-Independent Marketing Communication
 
This is a non-independent marketing communication commissioned by BlackRock Latin American. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research}.