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Aberdeen Latin American Income not sure it can meet dividend target

Aberdeen Latin American Income has published interim results covering the six months that ended on 28 February 2015. Over that period the fund generated a return on net assets of -19.1% and the return to shareholders was -18.6%, both worse than the return on their benchmark – a blend of the MSCI EM Latin American 10/40 Index and the JPMorgan GBI-EM Global Diversified Index (Latin America carve out). They are paying a second interim dividend of 1p. There is a target to pay 4.25p for the year but they say weak markets and weak currencies mean that they are keeping this target under review.

The problems in Brazil – an election result that the market didn’t like and a corruption scandal involving the winning party and Petrobras – weighed on that market, the largest in the region. This was further compounded by the continuing weakness in commodity markets. Mexico cut its 2015 budget by almost 3% and cancelled a high-speed train project, while Colombia postponed over US$2 billion in government spending. Chile, a net oil importer, had room to maintain its lending rate as cheaper oil reduced inflationary pressure. While the vast majority of central banks kept monetary policy loose to shore up economic growth, Brazil continued to aggressively raise interest rates, in the hope of taming rising inflation.

The manager says that, while the portfolio’s equity overweight to Brazil hurt performance, this was partly compensated for by positive stock selection. Several Brazilian holdings such as department store operator Lojas Renner, tobacco company Souza Cruz, fuel and chemicals company Ultrapar, dental health insurer Odontoprev and payment solutions specialist Valid were the top contributors to relative return. The portfolio’s holdings in Mexico did well despite the market’s decline. Airport operators OMA and ASUR continued to benefit from a robust rise in traffic and commercial revenues. ASUR, in particular, saw a double-digit jump in traffic growth and good margin expansion in the fourth quarter, although exchange-rate losses hurt the bottom line. Convenience store operator and Coke bottler, FEMSA, rose on the back of good results and its plans to enter the fuel retail market, an industry that has recently been opened up to the company as a result of domestic energy reform.

Where the equity portfolio lagged was in Peru and Argentina. Stock selection in Peru hurt performance as shares of sole holding, infrastructure company Grana y Montero, fell on worries over the domestic economic slowdown. It was also hampered by concerns over its order backlog, an indication of future earnings, as fewer local projects have been awarded, while mining investments have slowed. In Argentina, the portfolio’s non-benchmark exposure via specialist oil and gas pipe maker Tenaris also weighed on performance, as the company’s shares fell due to concerns that demand could fall if oil prices continue to remain soft. The portfolio’s exposure to Uruguayan inflation linked bonds positively contributed to performance, as the currency outperformed its major regional peers.

ALAI : Aberdeen Latin American Income not sure it can meet dividend target

 

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