Ian Cowie: signs this one’s a winner from Trump’s tariffs

It has become something of a contemporary cliché to say there are no winners in a trade war, but I beg to disagree. For example, how do you fancy an investment trust whose share price has soared by 12% since US president Donald Trump imposed “reciprocal tariffs” on most imports, and which continues to yield nearly 6% dividend income?

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It’s only fair to say straightaway that this trust is so far off most intermediaries’ radar that its fund managers rescinded their membership of the Association of Investment Companies (AIC), although it remains the sole surviving member of its sector on the AIC website. I am talking about BlackRock Latin American Ord (LSE:BRLA), which has given me exposure to this often-overlooked continent, rich in hard and soft commodities, for more than a decade.

Most immediately, Brazil, which is by far BRLA’s biggest country allocation at 60% of the fund, is benefiting from the fact that China has largely stopped buying soybeans from America, since the latter slapped 145% tariffs on imports from the former, which retaliated with 125% taxes on US exports. China was already the biggest buyer of Brazil’s agricultural exports and is now snapping up even more corn and soybeans from Latin America because its vast herd of pigs still needs feeding, whatever happens next in the global trade war.

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No wonder Frederico D'Avila, a farmer and a senior figure at Aprosoja, a soybean producers' organisation, told the BBC that President Trump's first term was “excellent for Brazilian agriculture as Trump's tariffs in that time favoured us”.

Brazil is also the world’s biggest exporter of beef, which is finding new buyers in other countries which have been hit by American tariffs, such as Japan. Something similar is true of Brazil’s hard commodities, such as bauxite and iron ore, with Argentina enjoying displaced demand for its aluminium.

On the far side of the continent, Chile is the world’s biggest source of copper, which is vital for electrification, and also has one of the largest reserves of lithium, the alkali metal necessary for modern batteries. Just over 5% of BRLA’s assets are invested in Argentina and Chile, with the former slightly larger than the latter.

Drilling down into the underlying equities held by this fund, the iron ore and nickel miner Vale SA ADR (NYSE:VALE) is the biggest holding at 8.7% of assets; followed by 7.3% in the oil and gas giant Petroleo Brasileiro SA Petrobras ADR (NYSE:PBR); then 5.4% in the copper miner Grupo Mexico; followed by 4.7% in the world’s biggest independent Coca-Cola bottler and Mexican supermarkets group Coca-Cola Femsa SAB de CV ADR (NYSE:KOF). Another retailer in the top 10 is Walmart de Mexico, where 4.5% of assets are invested.

But economic and political headwinds have made it difficult for BRLA to make much progress until recently. For example, according to independent statisticians Morningstar, this £113 million fund generated total returns of only 39% over the past decade, followed by 62% over the past five years and a loss of nearly -12% over the past year.

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Against all that, this fund has survived stock market shocks since its launch in 1990, and its biggest shareholders today include the investment trust value-hunter City of London Investment Group (LSE:CLIG), which holds nearly 22% of the stock, followed by the investment bank Lazard Inc (NYSE:LAZ) with nearly 9%, and the charitable Microsoft billionaires, Bill and Melinda Gates Foundation, with 6%.

Commodity cycles, or the tendency for today’s glut to lead to tomorrow’s famine and vice versa, have imposed extreme volatility on investors. More happily, this bumpy ride has been helpful recently, with BRLA’s share price bouncing 12% higher than it began the year.

Trump’s tariffs have triggered a backlash against agricultural goods produced by North America’s farmers. This has displaced demand to the benefit of their rivals in South America.

So, however harmful a trade war will be for the global economy, this is an ill wind that is blowing some good south of the border, raising the economic tempo in Rio de Janeiro and Buenos Aires.

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

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