ALAI : Tough year for Aberdeen Latin American Income
Aberdeen Latin American Income underperformed its benchmark over the year that ended on 31 August 2014. The total return on net assets was 10.4% vs. a return of 12.7% for the benchmark (60% MSCI EM Latin America 10/40 Index and 40% JP Morgan GBI-EM Global Diversified (Latin America Carve Out) in Sterling). Shareholders were hit as the shares moved from trading on a discount of 2.6% to trading on a discount of 10.6%. this pushed the return to shareholders down to 1.4%. The Board bought back some shares to try to rein in the discount, its long-term aim is to keep it tighter than 5%, and it has narrowed bit since the end of August.
The company’s revenue declined as well – the Board decided to maintain the dividend at 4.25p, dipping slightly into revenue reserves to preserve this level of payment. The Board has said that it is its aim to maintain this level of dividend for the current accounting year.
There were problems across the region – a declining copper price hit Chile, the re-election of Dilma Rousseff in Brazil was seen as bad news for Brazil’s economy and Argentina was hit by a falling currency and restrictions on price increases for some consumer staples (which led to shortages of some goods).
The manager’s report says that some of the fund’s consumer holdings, including Brazilian retailers Hering and Arezzo, as well as Mexican bottler Femsa, were hampered by muted domestic demand. Also, macroeconomic weakness was exacerbated by soft commodity prices, which weighed on holdings such as iron ore producer Vale. The fund’s sole Argentine holding, steel pipe maker Tenaris, lagged. Its share price fell early this year when US authorities determined that its South Korean competitors would not be subject to anti-dumping measures. In Chile, Andina, the Coca-Cola bottler, which derives about 20% of its pre-tax earnings from Argentina, posted lacklustre second-quarter results owing to foreign exchange losses.