Ian Cowie: Trump’s tariffs offer hope for one of my laggards

Trump tariffs adding 25% to the cost of all aluminium and steel imports from 4 March prompted European Union threats to tax American bourbon and Harley-Davidson motorcycles at 50% this week.

Now, while the stock market losers from less international trade with the world’s biggest economy are many and obvious, a much more obscure winner is emerging from an investment sector that is so unfashionable it had almost disappeared.

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Better still, the last trust left standing in its Association of Investment Companies (AIC) sector currently yields 6.1% dividend income, albeit without a sustained track record of annual increases. Bargain-hunters willing to take a walk on the wild side will also note the shares are trading at a -10% discount to their net asset value (NAV).

Step forward BlackRock Latin American Ord (LSE:BRLA), which stands to gain from rising demand for soft and hard commodities, such as metals and foods, displaced by tariff wars sparked by its larger, North American neighbour. Economies as diverse as Argentina, Brazil and Mexico are benefiting from tit-for-tat hostilities between the US and its former trade partners.

Never mind the generalities, not many investors noticed but Brazil has overtaken America as the largest supplier of corn to China. Trump’s tariffs prompted the Chinese leader, Xi Jinping, to direct the world’s most-populous nation to feed its vast pig farms with maize from anywhere other than America - and Brazil is the only agricultural economy big enough to meet that massive displaced demand.

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There’s no need to take this townie’s word for it. Here’s what Mark Mueller, a soybean farmer from the Midwest agri-state of Iowa, told the Financial Times: “We’ve gone from being a seller of choice to a seller of last resort.”

Similarly, Aaron Lehman, president of the Iowa Farmers’ Union, explained: “Trading relationships go up on a stairway, where you work hard to build them up, but go down on an elevator — very, very fast.

“A lot of our Asian buyers started developing relationships with soybean producers in South America, and they’ve taken more and more of our market.”

BRLA’s portfolio should benefit with 60% of underlying assets allocated to Brazil, followed by 22% in Mexico and 4% in Chile. Perhaps surprisingly, given Argentina’s recent economic recovery via shock therapy by its bureaucracy-busting chainsaw-wielding president Javier Milei, this investment trust shuns potential profits on the Pampas. BRLA’s fund manager, Sam Vecht, argues that the Argentinian currency is overvalued.

Total assets of £113 million are more diversified by sector, with 24% allocated to financials; 22% to materials and 15% in consumer staples. Top 10 holdings are led by the miner Vale SA ADR (NYSE:VALE), followed by the oil giant Petroleo Brasileiro SA Petrobras ADR (NYSE:PBR), with the supermarkets group Walmart de Mexico y Centroamerica not far behind.

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Sad to say, none of the above has added up to satisfactory returns for BRLA shareholders in recent years. Its “total return” is minus 20% over the past year, minus 14% over the past five years and a pretty feeble positive 36% over the decade, according to independent statisticians Morningstar.

No wonder only one of BRLA’s four directors has invested more than their annual fee in this trust, according to “skin in the game” research by the stockbroker Investec. Well done, Craig Cleland! Less happily, BRLA has left the AIC, suggesting BlackRock is not much interested in marketing these shares.

Nothing daunted, Vecht told me: “We believe that regional economic fundamentals continue to be more robust than many currently assume and highlight, for example, that we are actually seeing earnings upgrades across Brazil.

“In addition, the region is benefiting from being relatively isolated from global geopolitical conflicts. As such, we believe that over the coming period Latin America will see an increase in foreign direct investment as well as an increase in allocation from local investors into their own region.”

Well, somebody’s got to keep the samba going. It’s only fair to ‘fess up that BRLA is not only one of my longest-held shares but also one of my least-successful investments. I transferred this holding from a paper-based broker in January 2010, when the shares traded at £3.10.

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Just over 15 years later, they fetched £3.20 this week. If it weren’t for happy memories of a fact-finding trip to Caracas, Venezuela, and Buenos Aires, Argentina, during the go-go 1990s - those were the days - I might have given up hope by now.

Inflation-busting income, taken tax-free in my ISA, helps to ease the boredom of torpid capital performance in the tropics. Even so, I know from painful experience why some City cynics say you have to be nuts to invest in Brazil.

Alternatively, more politically correct Square Mile cynics claim it is the country of tomorrow - and always will be. Against all that, it’s an ill wind which blows no good. While America, China and the EU might all be losers from tariff wars, Brazil could be a winner from displaced demand for hard and soft commodities.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in BlackRock Latin American (BRLA), as part of a globally diversified portfolio of investment trusts and other shares.